Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $360,000. The cash flow patterns for each project are given below.Storage facility: Even cash flows of $120,000 per yearCar wash: $112,500, $142,500, $60,000, $120,000, and $90,000Required:Calculate the payback period for the storage facility (even cash flows).yearsCalculate the payback period for the car wash facility (uneven cash flows). Round your answer to three decimal places. yearsWhich project should be accepted based on payback analysis? What if a third mutually exclusive project, a laundry facility, became available with the same investment and annual cash flows of $150,000?Now which project would be chosen?

Time period required for collecting the amount of investment is known as payback period.

Answered: What if a third mutually exclusive…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $360,000. The cash flow patterns for each project are given below.

Storage facility: Even cash flows of $120,000 per year

Car wash: $112,500, $142,500, $60,000, $120,000, and $90,000

Required:

Calculate the payback period for the storage facility (even cash flows).
years
Calculate the payback period for the car wash facility (uneven cash flows). Round your answer to three decimal places.
years

Which project should be accepted based on payback analysis?

What if a third mutually exclusive project, a laundry facility, became available with the same investment and annual cash flows of $150,000?

Now which project would be chosen?

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