Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the discounted payback decision to evaluate this project; should it be accepted or rejected?
A) Discounted payback = 4.25 years; accept the project
B) Discounted payback = 3.50 years; accept the project
C) Discounted payback 5 years; reject the project
D) Discounted payback = 4.67 years; reject the project

Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the discounted payback decision to evaluate this project; should it be accepted or rejected? 
A) Discounted payback = 4.25 years; accept the project 
B) Discounted payback = 3.50 years; accept the project 
C) Discounted payback > 5 years; reject the project 
D) Discounted payback = 4.67 years; reject the project

Quizplus · Accepted Answer

The discounted payback period for this project is 4.67 years, which is greater than the maximum allowable discounted payback of 4.5 years. Therefore, the project should be rejected.

Suppose Your Firm Is Considering Investing in a Project with the Cash