Cortes Company is considering three investment opportunities with the following payback periods: $$\begin{array} { | l | c | c | c | }
\hline & \text { Project } X & \text { Project } Y & \text { Project } Z \
\hline \text { Payback period } & 3 \text { years } & 2.5 \text { years } & 2.8 \text { years } \
\hline
\end{array}$$ Use the decision rule for payback to rank the projects from most desirable to least desirable, all else being equal.

Question

Cortes Company is considering three investment opportunities with the following payback periods: $$\begin{array} { | l | c | c | c | } 
\hline & \text { Project } X & \text { Project } Y & \text { Project } Z \
\hline \text { Payback period } & 3 \text { years } & 2.5 \text { years } & 2.8 \text { years } \
\hline
\end{array}$$ Use the decision rule for payback to rank the projects from most desirable to least desirable, all else being equal.

Quizplus · Accepted Answer

The payback period decision rule ranks projects based on how quickly they recover their initial investment. The shorter the payback period, the more desirable the project. Therefore, Project Y (2.5 years) is most desirable, followed by Project Z (2.8 years), and then Project X (3 years).

Cortes Company Is Considering Three Investment Opportunities with the Following