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Question:

Which project should you suggest to the committee and why?

A Project 2, because it has a payback period of 16 months while Project 1 has a payback period of 19 months
Explaination

Project 1’s payback period is 19 months. Year 1 inflows are $528,000. Year 2 inflows are $39,000 per month, making the total payback period 19 months. Project 2’s payback period is 16 months. Year 1 inflows are $72,000. Year 2 inflows are $45,000 per month, which makes the payback period 16 months.