Question

Logan Farms is evaluating the feasibility of a new grain elevator. The farm has decided to use the payback period project evaluation method, and requires a payback of 2 years. Given the following cost/cash flow estimates, should the grain elevator be purchased, and why?

                        Initial Cost                  Period              Cash flows

                        $5,000,000                      1                  2,000,000

                                                                2                  2,300,000

                                                                3                  2,600,000                                                               

4                  1,200,000

Multiple Choice

• Yes; the payback period is less than 1 year

• Yes; the payback period is less than 2 years

• No; the payback period is more than 2 years

• No; the payback period is more than 3 years

• More information is needed to answer this question

Answer 1