Sal is considering a project that costs $15,000. The project produces cash inﬂows of $3,000, $5,000, $7,000, and $3,000 respectively for the next four years. Sal wants to recoup his money
Within 3 years after applying a 6% discount rate. Sal should:
A) Accept the project because it produces $15,534 on a discounted payback basis.
B) Accept this project because the discounted payback period is 2.78 years.
C) Accept this project because the payback period is exactly 3 years.
D) Reject this project because the payback period is 2.78 years.
E) Reject this project because the discounted payback period is 3.78 years.

Question

Quizplus · Accepted Answer

The discounted cash flows for the first three years do not recoup the initial investment of $15,000 within 3 years at a 6% discount rate. The discounted payback period is longer than 3 years, specifically 3.78 years.

Sal Is Considering a Project That Costs $15,000