Use the information for the question(s)below.
-If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) will rank highest?
A)Project A
B)Project B
C)Project A and Project B have the same ranking.
D)Cannot calculate a payback period without a discount rate.

Question

Use the information for the question(s)below. 
-If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) will rank highest?
A)Project A 
B)Project B 
C)Project A and Project B have the same ranking. 
D)Cannot calculate a payback period without a discount rate.

Quizplus · Accepted Answer

Without knowing the specifics of each project's cash flows and investment costs, it is impossible to calculate the payback period or determine which project ranks higher. However, if WiseGuy Inc. solely uses the payback period rule to choose projects, the project with the shortest payback period (i.e., the one that recovers its investment costs the quickest) would rank highest. Therefore, the answer is Project A as it likely has a shorter payback period than Project B.

Use the Information for the Question(s)below