A Company Is Evaluating Three Possible Investments What Is the Payback Period for Project A? (Assume That

question 113

Multiple Choice

A company is evaluating three possible investments. Following information is provided by the company. $$\begin{array} { | l | r | r | r | } \hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 200,000 & \$ 50,000 & \$ 200,000 \\\hline \text { Salvage value } & 0 & 5,000 & 10,000 \\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & 50,000 & 25,000 & 80,000 \\\hline \text { Year 2 } & 50,000 & 16,000 & 50,000 \\\hline \text { Year 3 } & 50,000 & 12,000 & 60,000 \\\hline \text { Year 4 } & 50,000 & 9,000 & 20,000 \\\hline \text { Year 5 } & 50,000 & & 0 \\\hline\end{array}$$ What is the payback period for Project A? (Assume that the company uses the straight-line depreciation method.)

• A) 3.0 years
• B) 2.0 years
• C) 4.0 years
• D) 5.0 years

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Definitions:

Financial Reports

Official documents that provide information about a company's financial performance, position, and cash flows over a specific period.

Profitability

The ability of a business to generate earnings over costs and expenses, indicating its financial success and sustainability.

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