1. Gander, Inc. is considering two projects with the following cash flows.
Year
Project X
Project Y
0
($100,000)
($100,000)
1
$40,000
$50,000
2
$40,000
$0
3
$40,000
$0
4
$40,000
$0
5
$40,000
$250,000
Gander uses the payback period method of capital budgeting and accepts only projects with payback periods of 3 years or less.
a. If the projects are presented as standalone opportunities which one( s) would Gander accept? If they were mutually exclusive and Gander disregarded its three year rule, which project would be chosen?
b. Is there a flaw in the thinking behind the correct answers to part a?
http://99galaxy.com/viewanswer/view/CAPITAL-BUDGETING-ErWnLnsDtS
Year
Project X
Project Y
0
($100,000)
($100,000)
1
$40,000
$50,000
2
$40,000
$0
3
$40,000
$0
4
$40,000
$0
5
$40,000
$250,000
Gander uses the payback period method of capital budgeting and accepts only projects with payback periods of 3 years or less.
a. If the projects are presented as standalone opportunities which one( s) would Gander accept? If they were mutually exclusive and Gander disregarded its three year rule, which project would be chosen?
b. Is there a flaw in the thinking behind the correct answers to part a?
http://99galaxy.com/viewanswer/view/CAPITAL-BUDGETING-ErWnLnsDtS
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