Net Cash Flow Determinations
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Two new software projects are proposed to a young start up company. The Alpha Project will cost $150,000 to develop and is expected to have an annual net cash flow of $40,000. The Beta Project will cost $200,000 to develop and is expected to have an annual cash flow of $50,000. The company is very concerned about their cash flow. Using the payback period, which project is better from a cash flow standpoint? Why?
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Solution Summary
This solution shows step-by-step calculations to determine the annual cash inflow and the payback period of the projects.
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Alpha Project - Payback period:
Initial investment/Annual cash inflow
= $150,000/$40,000
= 3.75 years
= 3 years and 9 ...
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