The cash flows for three projects are shown above. The cost of capital is 9.5%. If an investor decided to take projects with a payback period two years or less, which of these projects would he take?
Investment A:
Year: 0 1 2 3 4 5
Cash flow: -$14,000 $6000 $6000 $6000 $6000 $6000
Investment B:
Year: 0 1 2 3 4 5
Cash flow: -$15,000 $7000 $7000 $7000 $7000 $7000
Investment C:
Year: 0 1 2 3 4 5
Cash flow: -$18,000 $12,000 $2000 $2000 $2000 $2000
A) Investment A
B) Investment B
C) Investment C
D) none of these investments
Answer: D
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