Suppose your firm is considering investing in a project with the cash flows show

Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time 0 1 2 3 4 5 6 Cash Flow -1,020 120 480 680 680 280 680 Use the payback decision rule to evaluate this project; should it be accepted or rejected? 2.62 years, reject 1.18 years, accept 0 years, accept 4.00 years, reject

Explanation / Answer

Discount rate 13% Year 0 1 2 3 4 5 6 Net cashflow -1020 120 480 680 680 280 680 Discounted CF -1020 106.1947 375.9104 471.2741 417.0567 151.9728 326.6166 Payback period 2.317508 Discounted Payback period 2.695075 years Answer 2.62 reject the project

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