Question: Gander, Inc. is considering two projects with the following cash flows. Gander uses the payback period method of capital budgeting and accepts only projects with

Gander, Inc. is considering two projects with the following cash flows.

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 parta?

Year Project X Project Y ($100,000) 40,000 40,000 40,000 40,000 40,000 ($100,000) 50,000 0 0 0 0 3 250,000

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