Porter Co Is Analyzing Two Projects for the Future If the Company Is Using the Payback Period Method and That

question 31

Multiple Choice

Porter Co. is analyzing two projects for the future. Assume that only one project can be selected. $$\begin{array} { | r | r | r | } \hline & \text { Project X } & \text { Project Y } \\\hline \text { Cost of machine } & \$ 68,000 & \$ 60,000 \\\hline \text { Net cash flow: } & & \\\hline \text { Year 1 } & 24,000 & 4,000 \\\hline \text { Year 2 } & 24,000 & 26,000 \\\hline \text { Year 3 } & 24,000 & 26,000 \\\hline \text { Year 4 } & 0 & 20,000 \\\hline\end{array}$$ 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 Y.
• B) Project X.
• C) Both X and Y are acceptable projects.
• D) Neither X nor Y is an acceptable project.
• E) Project Y because it has a lower initial investment.

Determine how firms in competitive markets establish a profit-maximizing level of production.

Understand the conditions for a firm to continue or cease production in the short run.

Distinguish between short-run and long-run decisions in competitive markets.

Recognize the characteristics and implications of being in a perfectly competitive market.

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