Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. The firm's cost of capital is 12 percent. What is the discounted payback period for this project? If the firm's acceptance period is five years, will this project be accepted? (Do not round intermediate computations. Round your answer to one decimal place.)

Question

Quizplus · Accepted Answer

The discounted payback period is calculated by discounting the cash flows at the firm's cost of capital (12%) and determining when the initial investment is recovered. The discounted payback period is 6.1 years, which is longer than the firm's acceptance period of five years, so the project will not be accepted.

Carmen Electronics Bought New Machinery for $5 Million