NARRBEGIN: Exhibit 8-1 Invst Csh Prj
Exhibit 8-1
The cash flows associated with an investment project are as follows:

-Refer to Exhibit 8-1.What's the payback period of the project? If a firm's cutoff payback period is 3 years,should it accept the project?

Question

NARRBEGIN: Exhibit 8-1 Invst Csh Prj
Exhibit 8-1
The cash flows associated with an investment project are as follows:
 
-Refer to Exhibit 8-1.What's the payback period of the project? If a firm's cutoff payback period is 3 years,should it accept the project?

Quizplus · Accepted Answer

By the end of year 3,the project produces a cumulative cash flow of $80,000.Thus the project earns back the initial $70,000 at some point during the third year.
(70,000 - 20,000 - 30,000)/ 30,000 = 0.67
The project's payback period is 2.7 years.
The firm should invest in the project.