A Company Is Evaluating 3 Possible Investments -
What Is the Payback Period for Project C?
A)

question 3

Multiple Choice

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$

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What is the payback period for Project C?

• A) 3.5 years
• B) 2.5 years
• C) 2.4 years
• D) 3.0 years

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Definitions:

Experimental Group

In an experiment, this group is exposed to the variable being tested, contrasting with the control group, which is not exposed to the variable.

Independent Variable

In experimental and research settings, the variable that is manipulated to observe its effects on a dependent variable.

Internal Validity

The degree to which a study establishes a trustworthy cause-and-effect relationship between a treatment and an outcome.

Experimental Methods

A research methodology in psychology and other sciences involving the manipulation of variables to determine cause and effect relationships.