Coffer Co.is analyzing two projects for the future.Assume that only one project can be selected.

$\begin{array} { l r r }
&\underline{\text{Project X}}&\underline{\text{Project Y}}\
\text{Cost of machine} & \$ 68,000 & \$ 60,000 \
\text{Net cash flow:} & & \
\text{Year 1} & 24,000 & 4,000 \
\text{Year 2} & 24,000 & 26,000 \
\text{Year 3} & 24,000 & 26,000 \
\text{Year 4} & 0 & 20,000
\end{array}$

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) 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

Coffer Co.is analyzing two projects for the future.Assume that only one project can be selected.

$\begin{array} { l r r }
&\underline{\text{Project X}}&\underline{\text{Project Y}}\
\text{Cost of machine} & \$ 68,000 & \$ 60,000 \
\text{Net cash flow:} &  & \
\text{Year 1} & 24,000 & 4,000 \
\text{Year 2} & 24,000  & 26,000 \
\text{Year 3} & 24,000 & 26,000 \
\text{Year 4} & 0 & 20,000
\end{array}$

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) 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

Payback period = (68,000/24,000) = 2.83 years

Coffer CoIs Analyzing Two Projects for the Future If the Company Is Using the Payback Period Method and One