Cost of machine Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice $ 90,390 34,500 34,500 34,500 0 If the company is using the payback period method, and it requires a payback period of three years or less, which project(s) should be selected? Both X and Y are acceptable projects Project X $ 68,000 Neither X nor Y is an acceptable project. 3,300 31,500 31,500 17,000 Project Y because it has a lower initial investment

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.