When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose
A) either project if they both are more than managers' maximum payback period.
B) neither project if they both are less than managers' maximum payback period.
C) the project that pays back the soonest.
D) the project that pays back the soonest if it is equal to or less than managers' maximum payback period.

Question

Quizplus · Accepted Answer

The payback period method focuses on how quickly the initial investment can be recovered. Therefore, among mutually exclusive projects, the one with the shortest payback period that is also within the manager's acceptable timeframe (equal to or less than the manager's maximum payback period) would be chosen. This ensures both a quick return and adherence to the company's investment criteria.

When Choosing Between Two Mutually Exclusive Projects Using the Payback