Ginny is considering an investment which will cost her $120,000. The investment produces no cash flows for the first year. In the second year the cash inflow is $35,000. This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently. Ginny requires a 10% rate of return and has a required discounted payback period of three years. Ginny should _______ this project because the discounted payback period is ______.
A) accept; 2.03 years
B) accept; 2.97 years
C) accept; 3.97 years
D) reject; 3.03 years
E) reject; 3.97 years

Question

Quizplus · Accepted Answer

The discounted payback period is 3.97 years, which exceeds Ginny's required payback period of three years, so she should reject the project.

Ginny Is Considering an Investment Which Will Cost Her $120,000