Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively.
$$\begin{array} { | l | c | c | c | c | c | c | }
\hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \
\hline
\end{array}$$
Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?
A) 1.23 years, accept
B) 2.45 years, accept
C) 2.77 years, accept
D) 5.36 years, reject

Question

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively.
$$\begin{array} { | l | c | c | c | c | c | c | } 
\hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \
\hline
\end{array}$$
Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?
A) 1.23 years, accept
B) 2.45 years, accept
C) 2.77 years, accept
D) 5.36 years, reject

Quizplus · Accepted Answer

The discounted payback period is 2.77 years, which is less than the maximum allowable 3.5 years, so the project should be accepted.

Suppose Your Firm Is Considering Investing in a Project with the Cash