Multiple choices in capital budgeting.
Coffer Co. is analyzing two projects for the future.Assume that only one project can be selected.
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Project X
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Project Y
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|
Cost of machine
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$68,000
|
60,000
|
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Net cash flow:
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Year 1
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24,000
|
4,000
|
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Year 2
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24,000
|
26,000
|
|
Year 3
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24,000
|
26,000
|
|
Year 4
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0
|
20,000
|
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 X.
B. Neither X nor Y is an acceptable project.
C. Both X and Y are acceptable projects.
D. Project Y.
E. Project Y because it has a lower initial investment.