Dakka Company is considering an investment of $500,000 in a financial instrument that is expected to return cash flows of $80,000 a year for 10 years. The operations manager says that it is a "no-brainer" because the total cash flows are $800,000, and it has a payback of just over six years. The VP Finance expresses caution. He says that because Dakka uses a 10% hurdle rate, a more thorough analysis may show that the investment does not qualify under the company's investment criteria. Considering the information provided, the company should reject the investment.

Question

Quizplus · Accepted Answer

The Answer of Dakka Company is considering an investment of $500,000 in a financial instrument that is expected to return cash flows of $80,000 a year for 10 years. The operations manager says that it is a "no-brainer" because the total cash flows are $800,000, and it has a payback of just over six years. The VP Finance expresses caution. He says that because Dakka uses a 10% hurdle rate, a more thorough analysis may show that the investment does not qualify under the company's investment criteria. Considering the information provided, the company should reject the investment.

Dakka Company Is Considering an Investment of $500,000 in a Financial