Calculate the Payback Period for Each of the Following Mutually

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.