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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Definitions:

Utility

The total satisfaction or benefit derived by consumers from consuming a good or service.

Rights

Entitlements or permissions, either legal, social, or moral, that individuals are given based on societal norms or legal systems.

Justice

The principle of fairness and the equitable treatment of individuals, as well as the administration of laws and policies.

Ethical Decisions

Choices made based on moral principles and values, considering the impact on stakeholders and society as a whole.