Porter Co.is analyzing two projects for the future.Assume that only one project can be selected. If the company is using the payback period method and it requires a payback of three years or less,which project should be selected?
A)Project Y.
B)Project X.
C)Both X and Y are acceptable projects.
D)Neither X nor Y is an acceptable project.
E)Project Y because it has a lower initial investment.

Question

Porter Co.is analyzing two projects for the future.Assume that only one project can be selected.  If the company is using the payback period method and it requires a payback of three years or less,which project should be selected?
A)Project Y. 
B)Project X. 
C)Both X and Y are acceptable projects. 
D)Neither X nor Y is an acceptable project. 
E)Project Y because it has a lower initial investment.

Quizplus · Accepted Answer

Project X has a payback period of 2.5 years ($100,000 initial investment divided by $40,000 annual cash inflow), which is less than the company's requirement of 3 years or less. Project Y has a payback period of 4 years ($120,000 initial investment divided by $30,000 annual cash inflow), which is not acceptable under the company's criteria. Therefore, Project X is the best choice.

Porter CoIs Analyzing Two Projects for the Future