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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow:-$235,000$65,800 $84,000 $141,000 122,000 $81,200 Use the payback decision rule to evaluate this project. (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Payback 3.06 X years Should the project be accepted or rejected? accepted rejected

Explanation / Answer

Yes project should be accepted since PBP of 2.60 years is less than allowance maxium period of 3 Years Dear Student Thank you for using Chegg Please find below the answer PBP Time Amount Cumulative                                                                                       -      (235,000.00)      (235,000.00)                                                                                  1.00         65,800.00      (169,200.00)                                                                                  2.00         84,000.00         (85,200.00)                                                                                  3.00       141,000.00           55,800.00                                                                                  4.00       122,000.00         177,800.00                                                                                  5.00         81,200.00         259,000.00 PBP = 2 + 85,200/141,000 PBP= 2 + .60 Years Payback period 2.60 Year

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