Problem - A company is evaluating three possible investments. The following information is provided by the company:
|
|
Project A
|
Project B
|
Project C
|
|
Investment
|
$200,000
|
$54,000
|
$200,000
|
|
Residual value
|
0
|
20,000
|
24,000
|
|
Net cash flows
|
|
|
|
|
Year 1
|
52,000
|
36,000
|
94,000
|
|
Year 2
|
52,000
|
27,000
|
64,000
|
|
Year 3
|
52,000
|
23,000
|
74,000
|
|
Year 4
|
52,000
|
20,000
|
34,000
|
|
Year 5
|
52,000
|
0
|
0
|
What is the payback period for Project A? (Assume that the company uses the straight-line depreciation method.)