Project Black Swan requires an initial investment of $115,000. It has positive c

Question

Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental cleanup costs, cash flow for the third and final year of the project is $(170,00). The company accepts all projects with a payback period of 2 years or less. A) The payback rule would reject this project because of its risk are too high B) The payback rule would reject this project because all negative cash flows are added together. C) If strictly applied, the payback rule would reject this project. D) If strictly applied, the payback rule would accept this project.

Explanation / Answer

D) If strictly applied, the payback rule would accept this project.

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