Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the payback decision to evaluate this project; should it be accepted or rejected?
A) Payback = 4.44 years; reject
B) Payback = 3.44 years; accept
C) Payback = 3.54 years; reject
D) Payback = 3.24 years; reject

Question

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the payback decision to evaluate this project; should it be accepted or rejected? 
A) Payback = 4.44 years; reject 
B) Payback = 3.44 years; accept 
C) Payback = 3.54 years; reject 
D) Payback = 3.24 years; reject

Quizplus · Accepted Answer

Payback = 3 + 700/1,600 = 3.44 years; accept.

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