question archive Two new wind-farm tower projects are proposed for a small company that installs them in south western Wisconsin
Two new wind-farm tower projects are proposed for a small company that installs them in south western Wisconsin
Subject:ManagementPrice:2.87 Bought7
Two new wind-farm tower projects are proposed for a small company that installs them in south western Wisconsin. Project A will cost $250,000 to complete and is expected to have an annual net cash flow of $75,000. Project B will cost $150,000 to complete and should generate annual net cash flows of $52,000. As a small company, the owner and senior management team are very concerned about their cash flow. Use the payback period method and determine which project is better from a cash flow standpoint.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Answer:
The payback period method compares how long it would take to pay back the cost put into a project and the project that requires a shorter payback period is more desirable.
For project A, it would take 3.33 years (or approximately 3 years and 4 months) to pay back the initial cost.
For project B, it would take 2.88 years (or approximately 2 years and 11 months) to pay back the initial cost.
Therefore, project B would be better from a cash flow standpoint.
