Logan Farms is evaluating the feasibility of a new grain elevator. The farm has decided to use the payback period project evaluation method, and requires a payback of 3 years. Given the following cost/cash flow estimates, should the grain elevator be purchased, and why?

Initial Cost Period Cash flows

$5,000,000 1 2,000,000

2 2,300,000

3 2,600,000

4 1,200,000

Multiple Choice

• Yes; the payback period is less than 1 year

• Yes; the payback period is 3 years

• No; the payback period is more than 2 years

• Yes; the payback period is less than 2 years

• No; the payback period is more than 3 years