Project Management Homework HELP needed

[disabledvetswife]

I don't know if this is the correct place to post, but I need some help with a homework assignment.

Here is the question:

Project A costs $10,000 and returns $3,000 a year for 3 years. Project B costs $15,000 and returns $5,000 a year for 2 years. Which one of the following is correct?

a. Payback period for Project A is 3 years
b. Payback period for Project B is 3 years
c. Both projects should be undertaken
d. Neither project should be undertaken

I chose B and it is incorrect. When I asked the professor if "d" is then the right answer, he's asking for my logic.

It's not A. It's not B. Without knowing the IRR, how do I know if it's C or D?

[carisal]

I don't know if this is the correct place to post, but I need some help with a homework assignment.

Here is the question:

Project A costs $10,000 and returns $3,000 a year for 3 years. Project B costs $15,000 and returns $5,000 a year for 2 years. Which one of the following is correct?

a. Payback period for Project A is 3 years
b. Payback period for Project B is 3 years
c. Both projects should be undertaken
d. Neither project should be undertaken

I chose B and it is incorrect. When I asked the professor if "d" is then the right answer, he's asking for my logic.

It's not A. It's not B. Without knowing the IRR, how do I know if it's C or D?

Is that all the information you have? what is project b returning in the 3rd year?

do they stop returning after the 3rd or 2nd (Project b?)year?

I have no education in this area... but I'm assuming IRR is interest rate return?

and why can't you choose to undertake just one project? LOL

((sorry this is no help at all, I'm just intrigued now...))

[disabledvetswife]

IRR = internal rate of return

That's all of the information I have. Nothing more.

[disabledvetswife]

The Professor just emailed me - and as usual, I try to make the question more difficult than it is.

The answer is D because at the end of the 3 years and 2 years, you have not met your breakeven point.

[newatthis]

i'm not sure- i'll have to let my dh read later and see if he has any ideas!

[kykidzmom]

I have a Master's in Finance and I don't know the answer. LOL! I don't think you have enough info. You need to know the return in year 3, the IRR etc. My gut is answer D because there isn't enough info and you haven't made enough money based on the info you do have. I just tossed this textbook in our recent move or I'd see if there is a similar question in there. Sorry!

[skw6559]

The Professor just emailed me - and as usual, I try to make the question more difficult than it is.

The answer is D because at the end of the 3 years and 2 years, you have not met your breakeven point.

This makes sense. I think that it is normal with the information given to make it harder than it seemed. I kept thinking that you don't have enough information to determine this.

[Maismom]

Project A costs $10,000 and returns $3,000 a year for 3 years. Project B costs $15,000 and returns $5,000 a year for 2 years. Which one of the following is correct?

a. Payback period for Project A is 3 years
b. Payback period for Project B is 3 years
c. Both projects should be undertaken
d. Neither project should be undertaken

a. This is obviously not correct as Project A's payback period is 3.33 years.
b. Project B's payback period is 3 years, but the problem states it retuns $5,000 for 2 years, thus, the project won't make it to the breakeven point. (The project only recovers $10,000, thus, $5,000 negative.)
c. This is obviously not correct, either, beacuse both projects do not provide any profits.
d. Logic from c tells me, d is correct.

However, this is a tricky question. I would be debating if the answer is b or d. The only reason I chose d was because the problem says Project B does not recover its cost.

I hate problem like this.

[balinese]

Project A- cost $10,000,-; its return is $3,000 a year for 3 years=$9,000,-
Project B- cost $15,000,-; its return is $5,000 a year for 2 years=$10,000,-

So:
(a) is wrong, since the project A does not break even in 3 years. You are still at loss of $1,000,- at the end of first year.
(b) is wrong. Nothing is mentioned for the year 3, so you loss $5,000 at the end of year 3! no break even.
(c) wrong- since these projects are loosing money, no returns is mentioned for the following years.
(d) correct. These project should not be taken since it is loosing money. You won't get your investment back.