Problem
Jones and company are considering investing in two mutually exclusive projects. Projects A and project B. The cash flows for each project are shown below.
Project A
Time 0 1 2 3 4 5 6
Cash flow -250,000 100,000 125,000 75,000 55,000 25,000 10,000
Project B
Time 0 1 2 3 4 5 6
Cash flow -200,000 55,000 165,000 10,000 35,000 35,000 12,000
Calculate the payback for each project. Based on the payback, which project should be accepted? Show your calculations.