Porter Co. is analyzing two projects for the future. Assume that only one project can be selected. $$\begin{array} { l r r }
& \text { Project X } & \text { Project } Y \
\text { Cost of machine } & \$ 68,000 & \$ 60,000 \
\text { Net cash flow: } & & \
\text { Year 1 } & 24,000 & 4,000 \
\text { Year 2 } & 24,000 & 26,000 \
\text { Year 3 } & 24,000 & 26,000 \
\text { Year 4 } & 0 & 20,000
\end{array}$$
- The payback period in years for Project X is:
A) 2.00.
B) 2.83.
C) 3.50.
D) 3.83.
E) 4.00.

Question

Porter Co. is analyzing two projects for the future. Assume that only one project can be selected. $$\begin{array} { l r r } 
& \text { Project X } & \text { Project } Y \
\text { Cost of machine } & \$ 68,000 & \$ 60,000 \
\text { Net cash flow: } & & \
\text { Year 1 } & 24,000 & 4,000 \
\text { Year 2 } & 24,000 & 26,000 \
\text { Year 3 } & 24,000 & 26,000 \
\text { Year 4 } & 0 & 20,000
\end{array}$$
- The payback period in years for Project X is:
A) 2.00.
B) 2.83.
C) 3.50.
D) 3.83.
E) 4.00.

Quizplus · Accepted Answer

The payback period for Project X is calculated as follows:
Year 1: $100,000 - $40,000 = $60,000 remaining
Year 2: $60,000 - $40,000 = $20,000 remaining
Year 3: $20,000 - $40,000 = -$20,000 (payback period reached)
Therefore, the payback period for Project X is 2 years and the best choice is Project X as it has a shorter payback period than Project Y.

Porter Co Is Analyzing Two Projects for the Future - the Payback Period in Years for Project X Is