A23. (Capital budgeting—payback method) Allenby Corp. has $10million to invest. Listed below are the expected future cashinflows to be received for four alternative investments, inmillions of dollars.
Investment A, Investment B, Investment C, InvestmentD
Year 1 7, 1, 0, 7
Year 2 1, 2, 0, 3
Year 3 2, 7, 3, 0
Year 4 2, 8, 7, 0
Year 5 2, 9, 10, 0
A. Compare investments A and B.
a. Compute the paybackperiods for Investments A and B.
b. Which one would youpick, based only on payback period?
c. Do you think one is abetter investment?
B. Compare investments C and D.
a. Compute the paybackperiods
b. Which one would youpick, based on the payback periods?
c. Do you think this isthe better investment? Why, or why not?
