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goldenfox
2 months ago
11

Madson Company is analyzing several proposed investment projects The firm has resources only for one project Project P Project Q

Project R Project S Project T Cost of investment $32,000 $38,200 $57,100 $47,400 $53,000 Net cash flow Year 1 $5,200 $3,200 $4,300 $26,000 $15,900 Year 2 $9,600 $15,300 $16,900 $8,400 $15,800 Year 3 $12,700 $14,700 $21,000 $6,400 $16,100 Year 4 $15,300 $19,300 $31,000 $4,300 $11,000 Year 5 $52,000 $2,100 $10,000 The company uses the payback period method for making capital investment decisions. On the basis of this decision model, which project should be selected? (Ignore taxes.) a. Project T b. Project Q c. Project P d. Project R e. None
Business
1 answer:
Nady [3.6K]2 months ago
3 0

Response:

Madison Company

According to the payback period decision model, the preferred project is:

c. Project P

Rationale:

a) Data and Analysis:

                            Project P   Project Q   Project R   Project S   Project T

Investment cost  $32,000    $38,200    $57,100    $47,400   $53,000

Net cash flows

Year 1                         $5,200      $3,200      $4,300   $26,000    $15,900

Year 2                        $9,600     $15,300    $16,900     $8,400     $15,800

Year 3                       $12,700     $14,700    $21,000     $6,400      $16,100

Year 4                       $15,300    $19,300     $31,000     $4,300     $11,000

Year 5                      $52,000     $2,100     $10,000

Cumulative net cash flow $94,800   $54,600    $83,200    $45,100    $58,800

                                 Year 4       Year 4        Year 4       Not possible     Year 4

b) Among five projects, four are recoverable by Year 4, yet Project P stands out due to its higher total cash inflows. Project R follows closely behind. The payback period is a capital investment assessment tool that counts the duration it takes to recoup the investment. This method does not account for time value of money unless the upgraded discounted payback period approach is applied.

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Providing the following details:

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