Tim is considering two projects, both of which have an initial cost of $12,000 and total cash inflows of $15,000. The cash inflows of project A are $1,000, $2,000, $4,000, and $8,000 over the next four years, respectively. The cash inflows for project B are $8,000, $4,000, $2,000 and $1,000 over the next four years, respectively. Which one of the following statements is correct if Tim requires a 10 % rate of return and has a required discounted payback period of 3 years? Given this information, Tim should accept project A because it has a payback period of 2.65 years.

Question

Quizplus · Accepted Answer

The statement is incorrect because the discounted payback period calculation takes into account the time value of money, and with the given cash flows, Project B, which provides higher cash inflows earlier, would have a shorter discounted payback period than Project A, making it more likely to meet the required payback period criterion of 3 years at a 10% discount rate.

Tim Is Considering Two Projects, Both of Which Have an Initial