Question

Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.9 years and a net present value of $4,200. Project B has an expected payback period of 3.1 years with a net present value of $26,400. Which project(s) should be accepted based on the payback decision rule?
A.) Project A only

B.) Project B only

C.) Both A and B

D.) Neither A nor B

E.) Either, but not both projects

Answer 1

Answer:

A.) Project A only

Explanation:

Given that

For project A

Pay back = 2.9 years

Net present value = $4,200

For project B

Pay back = 3.1 years

Net present value = $26,400

Based on the above information and payback decision rule, The project A should be accepted as it it contain less period compared to the project B i.e 2.9 years to 3.1 years

Hence, the correct option is a.