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6. Jack Inc. has a cost of capital of 7.5% and adopts a payback threshold of...

6. Jack Inc. has a cost of capital of 7.5% and adopts a payback threshold of 2.2 years. The company is currently considering five projects. The following table reports yearly cash flows for each project. (21 points)

Project A

Project B

Project C

Project D

Project E

Time 0

-$14,000

-$15,000

-$18,000

-$20,000

-$21,000

Time 1

$6,000

$7,000

$12,000

$12,000

$12,000

Time 2

$6,000

$7,000

$4,000

$7,000

$12,000

Time 3

$6,000

$7,000

$4,000

$7,000

0

Time 4

$6,000

$7,000

$4,000

$7,000

0

Time 5

$6,000

$7,000

$4,000

$7,000

0

a. Calculate the payback period for each project. Using the payback period rule and assuming the projects are independent, what project(s) would you recommend to Jack Inc.? What if the projects are mutually exclusive?

Project

Payback Period

A

B

C

D

E

Project Selection

Mutually Exclusive Case

Independent Case

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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