A local company has just received a cash loan of $10,000. Its administrators are

Question

     A local company has just received a   cash loan of $10,000. Its administrators are considering the following   two possible capital investment projects:      (1) Project ITRS is to implement an enterprise wise electronic inventory   tracking and reporting system. It has an estimated life of 5 years.      (2) Project ITRS has an initial cost of $9,500 and can generate a net cash   savings of $3,000 in Year 1, $3,100 in Year 2, $3,200 in Year 3, $3,300 in   Year 4 and $3,400 in Year 5.      (3) Project TKS is to implement a web-based electronic time-keeping system   for the HR Department.  It has an estimated life of 5 years.      (4) Project TKS has an initial cost of $10,000 and can generate a net cash   savings of $4,000 in Year 1, $3,950 in Year 2, $3,900 in Year 3, $3,850 in   Year 4 and $3,800 in Year 5.      (5) The interest rate used to discount cash flows associated with both   projects is 5%.      The payback period for Project ITRS is: _________; and the payback period for   Project TKS is: _________. (Points : 5)           6.03 years; 5.32 years   5.32 years; 6.03 years    3.52 years; 3.63 years 3.06 years; 2.53 years

Explanation / Answer

The discount rate given =5%

For ITRS Payback period =3.06 yrs

for TKS Payback period =2.53 years

hence the ans is D

cheers :)

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