Porter Co. is analyzing two projects for the future. Assume that only one project can be selected. $$\begin{array} { l r r }
& \text { Project X } & \text { Project } Y \
\text { Cost of machine } & \$ 68,000 & \$ 60,000 \
\text { Net cash flow: }\
\text { Year 1 } & 24,000 & 4,000 \
\text { Year } 2 &24,000 & 26,000 \
\text { Year 3 } & 24,000 & 26,000\
\text { Year 4 } & 0 & 20,000 \
\end{array}$$
- 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) Neither X nor Y is an acceptable project.
D) Both X and Y are acceptable projects.
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. $$\begin{array} { l r r } 
 & \text { Project X } & \text { Project } Y \
\text { Cost of machine } & \$ 68,000 & \$ 60,000 \ 
\text { Net cash flow: }\
\text { Year 1 } & 24,000 & 4,000 \
\text { Year } 2 &24,000 & 26,000 \
\text { Year 3 } &  24,000 & 26,000\
\text { Year 4 } &  0 & 20,000 \
\end{array}$$
- 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) Neither X nor Y is an acceptable project.
D) Both X and Y are acceptable projects.
E) Project Y because it has a lower initial investment.

Quizplus · Accepted Answer

Project X has a payback period of 3 years ($24,000 per year for 3 years = $72,000, which covers the $68,000 cost), while Project Y takes longer than 3 years to pay back the $60,000 cost.

Porter Co Is Analyzing Two Projects for the Future - If the Company Is Using the Payback Period Method