Acme,Inc.is considering a four-year project that has initial outlay or cost of $100,000.The respective cash inflows for years 1,2,3 and 4 are: $50,000,$40,000,$30,000 and $20,000.Acme uses the discounted payback period method,and has a discount rate of 11.50%.Will Acme accept the project if it's payback period is 37 months?
A)Yes,because it pays back in less than 37 months.
B)No,because it pays back in over 37 months.
C)No,because it pays back in over 38 months.
D)No,because it pays back in over 40 months.

Question

Quizplus · Accepted Answer

The discounted cash flows need to be calculated for each year using the 11.50% discount rate. The cumulative discounted cash flows do not recover the initial investment within 37 months, indicating the payback period is longer than 37 months.

Acme,Incis Considering a Four-Year Project That Has Initial Outlay or Cost