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

Porter Co. is analyzing two projects for the future. Assume that only one project can be selected. $$\begin{array} { | r | r | r | } \hline & \text { Project X } & \text { Project Y } \\\hline \text { Cost of machine } & \$ 68,000 & \$ 60,000 \\\hline \text { Net cash flow: } & & \\\hline \text { Year 1 } & 24,000 & 4,000 \\\hline \text { Year 2 } & 24,000 & 26,000 \\\hline \text { Year 3 } & 24,000 & 26,000 \\\hline \text { Year 4 } & 0 & 20,000 \\\hline\end{array}$$ 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.

Correct Answer:

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