Compute the payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent and the maximum allowable payback is five years.
$$\begin{array}{l}
\begin{array} {| l | l | l | l | l | l | l |}
\hline\text {Time: }&0&1&2&3&4&5\
\hline\text {Cash flow:}&-75&-75&0&100&75&50\\hline
\end{array}
\end{array}$$
A) 3.67 years, accept
B) 4.67 years, accept
C) 3.67 years, reject
D) 4.67 years, reject

Question

Compute the payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent and the maximum allowable payback is five years.
$$\begin{array}{l}
\begin{array} {| l | l | l | l | l |  l |  l |}
\hline\text {Time: }&0&1&2&3&4&5\
\hline\text {Cash flow:}&-75&-75&0&100&75&50\\hline
\end{array}
\end{array}$$
A) 3.67 years, accept
B) 4.67 years, accept
C) 3.67 years, reject
D) 4.67 years, reject

Quizplus · Accepted Answer

The payback period is 3.67 years, which is less than the maximum allowable payback of five years. Therefore, the firm should accept the project.

Compute the Payback Statistic for Project X and Recommend Whether