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An electronics company is preparing a capital budget and considering four long-term investments. The payback period...

An electronics company is preparing a capital budget and considering four long-term investments. The payback period of each project is as follows:
• Project A: 4 years
• Project B: 5.2 years
• Project C: 2.4 years
• Project D: 3 years .
 
In theory, which two projects should the company pursue?
  • Projects A and C
  • Projects B and D
  • Projects C and D
  • Projects A and B
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Answer #1

The answer is - Project C and D

Reason- Payback period means the time period in which the initial investment made in the project will be recovered.Project with shorter payback period are more beneficial than project with higher payback period.It will help the firm in recovering initial investment made in the project on a more timely basis.

Hence the company should pursue project C and D as is has minimum payback period.

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