Project H requires an initial investment of $100,000 and produces annual cash flows of $50,000, $40,000 and $30,000.Project T requires an initial investment of $100,000 and the produces annual cash flows of $30,000, $40,000, and $50,000.The projects are mutually exclusive.The company accepts projects with payback periods of three years or less.
A)Project H will be accepted.
B)Project T will be accepted.
C)H and T will both be accepted.
D)Neither projected will be accepted.

Question

Quizplus · Accepted Answer

Project H has a payback period of (100,000/50,000) + (100,000/40,000) + (100,000/30,000) = 2 years and 8 months. This is less than the required payback period of 3 years or less, so Project H will be accepted. Project T has a payback period of (100,000/30,000) + (100,000/40,000) + (100,000/50,000) = 3 years and 3 months, which is longer than the required payback period, so Project T will not be accepted. Therefore, the best choice is A, Project H will be accepted.

Project H Requires an Initial Investment of $100,000 and Produces