Problem:
Consider the following two mutually exclusive projects, each of which require an initial investment of $30,000 and provide cash inflows of $60,000 as shown below. This organization has a 15% cost of capital.
Year Project A Project B
0 ($30,000) ($30,000)
1 $30,000 $10,000
2 $20,000 $20,000
3 $10,000 $30,000
Using the above payback criterion, which is the most desirable project?
Project A
Project B
Both & A & B are equally acceptable
Neither A or B are acceptable
Please advice answer and explain why?