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Which one would gander accept

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Reference no: EM133073082

Problem - 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

360,000

Gander uses the payback period method of capital budgeting and accepts only projects with payback periods of 3 years or less.

1. If the projects are presented as stand-alone opportunities, which one(s) would Gander accept?

If they were mutually exclusive and Gander disregarded its three year rule, which project would be chosen?

2. Is there a flaw in the thinking behind the correct answers to part (a)?

Reference no: EM133073082

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