Two new software projects are proposed to a young PDF

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Two new software projects are proposed to a young...

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1. Two new software projects are proposed to a young, start-up company. The A project will cost $150,000 to develop and is expected to have annual net cash flow of $40,000. The B project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000. The company is very concerned about their cash flow. Using the payback period, which project is better from a cash flow standpoint? Why?  Project (A): Cost: $150,000 Annual net cash flow: $40,000  Project (B): Cost: $200,000 Annual net cash flow: $50,000

o Payback period Project (A):

Estimated Project Cost 150,000 = 40,000 Annual Savings

= 3.75 Years

o Payback period Project (B):

Estimated Project Cost 200,000 = = 4 Years 50,000 Annual Savings

The payback model measures the time it will take to recover the project investment and shorter period id desirable. Since the payback period for project A is 3.75 years and for project B is 4 years, project A is better and more desirable because it has a shorter payback period (3.75 years) than project B (4 years), which means that the company can recover their investment quicker....