You are considering an investment with the following cash flows. Your required return is 10%, you require a payback of three years and a discounted payback of four years. If your objective is to maximize your wealth, should you take this investment?
A) Yes, because the payback is 2.5 years.
B) Yes, because the discounted payback is four years.
C) Yes, because both the payback and the discounted payback are less than two years.
D) No, because the NPV is negative.
E) No, because the project has a large negative cash flow at the end of its life.

Question

You are considering an investment with the following cash flows. Your required return is 10%, you require a payback of three years and a discounted payback of four years. If your objective is to maximize your wealth, should you take this investment? 
A) Yes, because the payback is 2.5 years. 
B) Yes, because the discounted payback is four years. 
C) Yes, because both the payback and the discounted payback are less than two years. 
D) No, because the NPV is negative. 
E) No, because the project has a large negative cash flow at the end of its life.

Quizplus · Accepted Answer

The Answer of You are considering an investment with the following cash flows. Your required return is 10%, you require a payback of three years and a discounted payback of four years. If your objective is to maximize your wealth, should you take this investment? 
A) Yes, because the payback is 2.5 years. 
B) Yes, because the discounted payback is four years. 
C) Yes, because both the payback and the discounted payback are less than two years. 
D) No, because the NPV is negative. 
E) No, because the project has a large negative cash flow at the end of its life.

You Are Considering an Investment with the Following Cash Flows