Calculate the Payback Period for Each of the Following Projects,then

question 54

Essay

Calculate the payback period for each of the following 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 and this amount increases by $1,000 annually over the 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:

Ethanol Program

Government initiatives aimed at promoting the use of ethanol, a renewable fuel made from corn and other plant materials, to reduce reliance on fossil fuels.

Inflation-Adjusted Price

The price of goods or services adjusted for the effects of inflation, allowing for the comparison of purchasing power over time.

Government Agricultural Aid

Financial and other forms of support extended by government to the agriculture sector to promote food production and farm income stability.

Countercyclical Payments

Government payments to farmers that increase when market prices are low and decrease when market prices are high, to stabilize farmers' incomes.