1. Gerry Company is considering Project Alpha, which has a cost of $100,000. The project is assumed to have the following annual earnings:
Year 1: $35,000
Year 2: $25,000
Year 3: $175,000
Year 4: $10,000
Determine the payback period for Project Alpha.
a. 3.12 years
b. 2.23 years
c. 2.65 years
d. 3 years
e. 4.12 years
2. Bob Perry is interested in learning how to integrate risk into capital budgeting decisions made by his firm. His financial manager, Rita Martin advises him to
a. determine the expected value.
b. adjust the time horizon.
c. adjust the standard deviation of possible outcomes.
d. adjust the discount rate.