Proposals M and N each cost $1,000,000, have 6-year lives, and have expected total cash flows of $1,200,000. Proposal M is expected to provide equal annual net cash flows of $200,000, while the net cash flows for Proposal N are as follows:
Year 1 |
$450,000 |
Year 2 |
$200,000 |
Year 3 |
$150,000 |
Year 4 |
$100,000 |
Year 5 |
$175,000 |
Year 6 |
$125,000 |
Determine the cash payback period for each proposal. Show all calculations. Rounds answers to 2 decimal place.
If resources are limited, which proposal should the company invest in? Why.
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