“I always go for the investment with the shortest payback period.” Is this a sound strategy?

19. “I always go for the investment with the shortest payback period.” Is this a sound strategy? Why or why not?


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Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects

Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of $35,000. Using the expected cash inflows given for each project in the following table, calculate each project's payback period. Which project meets Elysian's standards?

Expected cash inflows
Year Hydrogen Helium
1 $6000 $7000
2 6,000 7,000
3 8,000 8,000
4 4,000 5,000
5 3,500 5,000
6 2,000 4,000

Click here for the solution: Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects