Acme, Inc. is considering a four-year project that has initial outlay or cost of
ID: 2736707 • Letter: A
Question
Acme, Inc. is considering a four-year project that has initial outlay or cost of $100,000. The respective cash inflows for years 1, 2, 3 and 4 are: $50,000, $40,000, $30,000 and $20,000. Acme uses the discounted payback period method, and has a discount rate of 11.50%. Will Acme accept the project if it's payback period is 37 months?
Yes, because it pays back in less than 37 months.
No, because it pays back in over 37 months.
No, because it pays back in over 38 months.
No, because it pays back in over 40 months.
A.Yes, because it pays back in less than 37 months.
B.No, because it pays back in over 37 months.
C.No, because it pays back in over 38 months.
D.No, because it pays back in over 40 months.
Explanation / Answer
The payabck period is time in which the persons recieves back its cashflows
Hence total time to recieve 100,000
Hence in first years 100000 would be recieved
50,000 + 40,000 =90,000 would be recievd in two years so as 10000 is to be recievd to get back whole investment and it would recieve 30000 in 3rd year hence paytabck period is less than 36 Months
Hence a
Will Acme accept the project if it's payback period is 37 months?
Yes, because it pays back in less than 37 months
A.Yes, because it pays back in less than 37 months
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