Question

As the VP of Engineering of a young startup that sells tickets for major concerts and sporting events, your team has approached you about two new projects they would like start. Your budget can only afford one, so you must prioritize. In the first you must invest $50, 000, but will receive $10,000 in annual cash flow. In the second project you must double the upfront invest $100,000, but the annual cash flow will be $25,000. Since you do not have a lot of cash on hand, which option is a better choice from a cash flow perspective?

What other financial measurements should be used to assess the projects?

Using the payback period method, which project would you select for funding and why?

Answer 1

From Cashflow pespective i will choose the $100,000 Project because by investing just $50000 more i can earn 2.5 Times of earlier Cashflows so i would prefer the $100,000 Project.

Bacause $50000 Project have rate of return of = $10000/$50000 = 20%

$100,000 Project Rate of Retun = $25000/$100000 = 25%

hence the $100,000 project is superior.

Other Messures Can be :- Payyback Period, Accounting rate of Return Method, Internal rate of return Method, Net Present Value method and profitability Index are the various method to evaluate the projects.

From The perspective of the payback period :-

Pay-Back Period of $50000 Project = $50000/$10000 = 5 Years

Pay- Back Period For the $100,000 Project = $100,000/$25000 = 4 years

hence from the Attractive.

I hope my efforts will be fruitful to you.....