10-1: Nanosecond Time Machines Co. is weighing the suitability of two mutually exclusive projects, Project X1 and Project X2. The estimated payback schedule (after-tax cash flow) is shown below. The CFO has set 3 years as maximum acceptable payback duration for a project outlay of $65,000 for either project.

Year Project X1 Project X2

1 $35,000 $20,000

2 20,000 20,000

3 15,000 30,000

(A) Calculate the payback period for Projects X1 and X2.

(B) Now consider the payback schedule below for the same projects:

Year Project X1 Project X2

1 $35,000 $20,000

2 20,000 20,000

3 10,000 25,000

What are the new paybacks for Projects X1 and X2?

(C) Which of the two projects should the company choose? Explain why.