Investment analysis assignment 6
Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an
initial investment of $100,000. John Shell, president of the company, has set a maximum
payback period of 4 years. The after-tax cash inflows associated with each project are shown
in the following table.
Cash inflows
Year Project A Project B
1 $10,000 $40,000
2 20,000 30,000
3 30,000 20,000
4 40,000 10,000
5 20,000 20,000
a) Determine the payback period of each project.
b) Because they are mutually exclusive, Shell must choose one. Which should the company
invest in?
c) Explain why one of the projects is a better choice than the other.
Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an
initial investment of $100,000. John Shell, president of the company, has set a maximum
payback period of 4 years. The after-tax cash inflows associated with each project are shown
in the following table.
Cash inflows
Year Project A Project B
1 $10,000 $40,000
2 20,000 30,000
3 30,000 20,000
4 40,000 10,000
5 20,000 20,000
a) Determine the payback period of each project.
b) Because they are mutually exclusive, Shell must choose one. Which should the company
invest in?
c) Explain why one of the projects is a better choice than the other.
