JJ's is reviewing a project with a required discount rate of 15.2 percent and an initial cost of $309,000. The cash inflows are $47,000, $198,000, and $226,000 for Years 2 to 4, respectively. Should the project be accepted based on discounted payback if the required payback period is 2.5 years?
A) Accept; The discounted payback period is 2.18 years.
B) Accept; The discounted payback period is 2.32 years.
C) Accept; The discounted payback period is 2.98 years.
D) Reject; The discounted payback period is 3.87 years.
E) Reject; The project never pays back on a discounted basis.

Question

Quizplus · Accepted Answer

The discounted cash flows do not recover the initial investment within the required 2.5 years, thus the project never pays back on a discounted basis.

JJ's Is Reviewing a Project with a Required Discount Rate