A firm has a choice of three projects, L, M and N. Each requires an investment of
£15,000, and forecast cash flows are as follows:
Year | L £ |
M £ |
N £ |
0 | (15,000) | (15,000) | (15,000) |
1 | 3,000 | 4,000 | 2,000 |
2 | 4,000 | 5,000 | 4,000 |
3 | 5,000 | 6,000 | 9,000 |
4 | 6,000 | 6,000 | 7,000 |
5 | 10,000 | 6,000 | 7,000 |
6 | 16,000 | 6,000 | 7,000 |
Calculate each project’s payback period. On the basis of this appraisal technique,
which project would be recommended?