Suppose your firm is considering investing in a project with the cash flows show
ID: 2794939 • Letter: S
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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.
Use the discounted payback decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.
Explanation / Answer
Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=3+(6713.34/80562.80)
=3.08 years(Approx)
Hence since discounted payback is less than 3.5 years;the project should be accepted.
Year Cash flows Present value@11% Cumulative Cash flows 0 (238000) (238000) (238000) 1 66100 59549.55 (178450.45) 2 84300 68419.77 (110030.68) 3 141300 103317.34 (6713.34) 4 122300 80562.80 73849.46 5 81500 48366.28 122215.74(Approx)Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.