A Company Utilizes the Payback Method Exclusively to Select Projects

question 31

Multiple Choice

A company utilizes the payback method exclusively to select projects.Which of the following mutually exclusive (they can only do one of them) projects will they choose? (Assume cash flows occur in equal monthly installments)

• A) Initial Investment: $10,000 Net Cash Flows: year 1:$0 year 2:$120,000 year 3:$60,000 each year thereafter:$60,000
• B) Initial Investment:$100,000 Net Cash Flows: year 1:$50,000 year 2:$50,000 year 3:$100,000 each year thereafter:$1,000,000
• C) Initial Investment:$10,000 Net Cash Flows: year 1:0 year 2:$100,000 year 3:$100,000 each year thereafter:$100,000
• D) Initial Investment:$100,000 Net Cash Flows: year 1:$1,000,000 year 2:$2,000,000 year 3:$2,000,000 each year thereafter:0
• E) Initial Investment:$10,000 Net Cash Flows: year 1:$8,000 year 2:$12,000 year 3:$120,000 each year thereafter:$120,000

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