The initial fixed capital investment is 1,000,000 ECU each, and one of the projects A and B is selected. The useful life of project A is 5 years and project B is 8 years. Annual net cash flows are shown below. Make the project selection using this data and based on the payback period. If the income they will bring during their useful life in both projects is taken into account, is there a preference change?
Net cash flows values, ECU/year for projects A and B:
Year
Project A
Project B
0
-1,000,000
-1,000,000
1
500,000
0
2
300,000
100,000
3
200,000
200,000
4
100,000
300,000
5
50,000
400,000
6
0
500,000
7
0
600,000
8
0
700,000