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Capital Budgeting

1. The budget committee has received the following projects. They are mutually exclusive. The Company uses 10% as the rate of return.

Year Project A Project B
0 - 30,000 - 60,000
1 10,000 20,000
2 10,000 20,000
3 10,000 20,000
4 10,000 20,000
5 10,000 20,000

Total +20,000 + 40,000
NPV: +7,910 +15,820

Payback (Solve)
Which project would you recommend first and why?

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Project A
Payback period = Initial investment/Expected return per year

Payback ...

Solution Summary

This solution is comprised of a detailed explanation and calculation to find payback for each project and select the project to invest.

$2.19