Quick Flick Is Considering Two Investments ? Quick Uses a Combination of the Net Present Value

Quick Flick is considering two investments. Both require a net investment of $120,000 and have the following net cash flows: $$\begin{array} { l l l } \text { Year } & \text { Project } \mathrm { X } & \text { Project Y } \\1 & \$ 50,000 & \$ 25,000 \\2 & \$ 40,000 & \$ 45,000 \\3 & \$ 30,000 & \$ 50,000 \\4 & \$ 25,000 & \$ 60,000 \\5 & \$ 20,000 & \$ 70,000\end{array}$$ ? Quick uses a combination of the net present value approach and the payback approach to evaluate investment alternatives. The firm uses a discount rate of 14 percent and requires that all projects have a payback period no longer than 3 years. Which investment or investments should Quick accept?

A) only Project X
B) only Project Y
C) both projects X and Y
D) reject both projects

Correct Answer:

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