Calculate the Payback Period for Each of the Following Projects

question 127

Essay

Calculate the payback period for each of the following projects, then comment on the advisability of selection based on the payback period criterion in contrast to NPV: Project A has a cost of $15,000, returns $4,000 after-tax the first year and this amount increases by $1,000 annually over the five-year life; Project B costs $15,000 and returns $13,000 after-tax the first year, followed by four years of $2,000 per year.The firm uses a 10 percent discount rate.

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Definitions:

Open Innovation

Practices and processes that encourage the use of external as well as internal ideas and internal as well as external collaboration when conceiving, producing, and marketing new products and services.

External Ideas

Concepts or innovations that originate outside an organization, which can be adopted and implemented to improve business operations or products.

Internal Ideas

Concepts or solutions that originate within an organization, often through its employees or internal research and development activities.

Consumer Packaged Goods

Products that are sold in packaging and consumed by the average consumer at a relatively fast pace, such as food, beverages, and toiletries.