Which project is superior using the payback method

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Reference no: EM132066671

PGA's management team is considering two projects, a golf club project and a helmet project.

WACC = 9.3%

PGA:

% of debt in capital structure 25%

% of equity in capital structure 75%

Before-tax required cost of debt 6%

Tax rate 30%

Cost of equity 11%

B. Capital Budgeting

Project information:

Golf club project Helmet project

Upfront costs (10,000,000) (8,000,000)

Annual cash flows Year 1 $0 $3,000,000

Year 2 $0 $3,000,000

Year 3 $4,000,000 $2,000,000

Year 4 $10,000,000 $2,000,000

1. Which project is superior using the payback method?

2. Show a clear equation for your findings on Excel or a calculator.

3. Show a clear equation for your findings typed.

Reference no: EM132066671

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