Assume a $4000 investment and the following cash flows for two alternatives. Under the payback method, which of the following would be concluded?

a. Investment X should be selected
b. Investment Y should be selected
c. Investment X and Y provide the same payback period
d. Neither investment is acceptable under the payback method

Investment X:

You need $200 more to recoup your initial investment of $4000, which you can get from the third year cash flow of $3700.
You only need the pro-rata amount, which will be $200/$3700 = 0.054 year

Pay back period for X = 2.054 years

Investment Y:
You need only $2700 from second year to recoup your initial investment of $4000.
You only need the pro-rata amount, which will be $2700/$2800 = 0.964 year

Pay back period for Y = 1.964 years

Investment Y is a better choice based on payback method alone

Payback period is the amount of time required for an investment to generate cash flows to recoup its initial investment.
An investment is acceptable if its calculated payback is less than prescribed number of years for the said company.

Payback period suffer from some of the following disadvantages:
It ignore the time value of money
It determines to accept or reject projects on an ad hoc basis.
It ignore the cash flow beyond the cut-off period
Its biased against an long term project as compared to a short term.
Other methods such as NPV and IRR take into consideration the time value of money and risk involved in the project by discounting future cash flows.

a 10 year zero coupon bond that yield 5% is issued with a 1000 par value. w hat is the issuance price of the bond

To determine the conclusion using the payback method, we need to calculate the payback periods for both investments.

Since you haven't provided the cash flows for investments X and Y, I am unable to calculate the payback periods for you. Please provide the cash flows for each investment so that I can help you determine the correct conclusion using the payback method.

To determine the conclusion using the payback method, we need to calculate the payback period for both investments. The payback period is the time it takes to recoup the initial investment.

Let's assume the cash flows for Investment X are as follows:
Year 1: $1000
Year 2: $1500
Year 3: $1200
Year 4: $800

Let's assume the cash flows for Investment Y are as follows:
Year 1: $500
Year 2: $1000
Year 3: $2000
Year 4: $500

To calculate the payback period, we start by subtracting the cash flows from the initial investment until it reaches zero.

For Investment X:
Year 1: $4000 - $1000 = $3000
Year 2: $3000 - $1500 = $1500
Year 3: $1500 - $1200 = $300
Year 4: $300 - $800 = -$500

For Investment X, it takes 3 years to recover the initial investment.

For Investment Y:
Year 1: $4000 - $500 = $3500
Year 2: $3500 - $1000 = $2500
Year 3: $2500 - $2000 = $500
Year 4: $500 - $500 = $0

For Investment Y, it takes 4 years to recover the initial investment.

Based on the payback period, Investment X has a shorter payback period (3 years) compared to Investment Y (4 years).

Therefore, the conclusion using the payback method would be:
a. Investment X should be selected