Quick Flick is considering two investments. Both require a net investment of $120,000 and have the following net cash flows: $$\begin{array} { l l l }
\text { Year } & \text { Project } \mathrm { X } & \text { Project Y } \
1 & \$ 50,000 & \$ 25,000 \
2 & \$ 40,000 & \$ 45,000 \
3 & \$ 30,000 & \$ 50,000 \
4 & \$ 25,000 & \$ 60,000 \
5 & \$ 20,000 & \$ 70,000
\end{array}$$ ? Quick uses a combination of the net present value approach and the payback approach to evaluate investment alternatives. The firm uses a discount rate of 14 percent and requires that all projects have a payback period no longer than 3 years. Which investment or investments should Quick accept?
A) only Project X
B) only Project Y
C) both projects X and Y
D) reject both projects

Question

Quick Flick is considering two investments. Both require a net investment of $120,000 and have the following net cash flows: $$\begin{array} { l l l } 
\text { Year } & \text { Project } \mathrm { X } & \text { Project Y } \
1 & \$ 50,000 & \$ 25,000 \
2 & \$ 40,000 & \$ 45,000 \
3 & \$ 30,000 & \$ 50,000 \
4 & \$ 25,000 & \$ 60,000 \
5 & \$ 20,000 & \$ 70,000
\end{array}$$ ? Quick uses a combination of the net present value approach and the payback approach to evaluate investment alternatives. The firm uses a discount rate of 14 percent and requires that all projects have a payback period no longer than 3 years. Which investment or investments should Quick accept?
A) only Project X
B) only Project Y
C) both projects X and Y
D) reject both projects

Quizplus · Accepted Answer

Project X has a payback period of less than 3 years and a positive NPV at a 14% discount rate, making it acceptable. Project Y, despite a longer payback period, likely has a positive NPV due to larger later cash flows, aligning with the firm's criteria when considering NPV.

Quick Flick Is Considering Two Investments ? Quick Uses a Combination of the Net Present Value