Samuelson Electronics has a required payback period of three years for all of its projects.Currently,the firm is analyzing two independent projects.Project A has an expected payback period of 2.8 years and a net present value of $6,800.Project B has an expected payback period of 3.1 years with a net present value of $28,400.Which projects should be accepted based on the payback decision rule?
A)Project A only
B)Project B only
C)Both A and B
D)Neither A nor B
E)Answer cannot be determined based on the information given.

Question

Quizplus · Accepted Answer

Since Samuelson Electronics has a required payback period of three years for all of its projects, the company should only accept Project A, which has an expected payback period of 2.8 years, and reject Project B, which has an expected payback period of 3.1 years. The net present value of the projects is not relevant when considering the payback decision rule.

Samuelson Electronics Has a Required Payback Period of Three Years