Williams Inc. has the following mutually exclusive investment opportunities. If

Question

Williams Inc. has the following mutually exclusive investment opportunities. If the appropriate discount rate was 15% what should you do?

year Project X Project Y

0       -600            -800

1        200             500

2        675             250

3          0               350

Calculate each project's payback period cutoff. Which would you accept if William's Payback period cutoff is 2 years?

Calculate each project's discounted payback period cutoff. Which would you accpet it William's payback period cutoff is 3 years?

Explanation / Answer

Calculate each project's payback period cutoff. Which would you accept if William's Payback period cutoff is 2 years?

Payback period cutoff:

Project X = 1.59 Year

Project Y = 2.14 Year

if William's Payback period cutoff is 2 years than Project X should be accepted

Calculate each project's discounted payback period cutoff. Which would you accpet it William's payback period cutoff is 3 years?

Discounted Payback period cutoff:

Project X = 1.83 Year

Project Y = 2.76 Year

if William's Payback period cutoff is 3 years than both project should be accepted if both are mutually exclusive but if one to choosed than project x to be choosen as it is lower payback period.

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