Calculate the Payback Period for Each of the Following Mutually

question 79

Essay

Calculate the payback period for each of the following mutually exclusive projects, then comment on the advisability of selection based on the payback period criterion: Project A has a cost of $15,000, returns $4,000 after-tax the first year with this amount increasing by $1,000 annually over a 5-year life; Project B costs $15,000 and returns $13,000 after-tax the first year, followed by 4 years of $2,000 per year. The firm uses a 10% discount rate.

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Definitions:

Environmental Scan

The process of systematically examining external elements affecting an organization, to identify opportunities and threats that could influence future strategies.

Strategic Planning Process

A methodical approach for setting organizational goals, determining actions to achieve those goals, and mobilizing resources to execute the actions.

SWOT Analysis

A strategic planning tool used to identify an organization's Strengths, Weaknesses, Opportunities, and Threats, helping in the development of strategic plans.

Core Competencies

Fundamental strengths and strategic advantages of an organization or individual that distinguish them from competitors.