A firm is considering the following three investment projects. The firm doesn't want to make any investment that takes more than three years to recover their initial investment.
Year A B C
0 $(950) $(9,000) $5,500)
1 650 4,500 1,500
2 250 3,500 1,500
3 160 3,500 2,500
4 60 3,500 2,500
5 480 3,500 2,500
a) Given company's 3 year payback period, which of the projects will qualify for acceptance?
b) Rank projects using their payback period. Which looks best and why?
c) If company uses a 9.8% discount rate to analyze projects. What is company's payback period for each project.