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 percent 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 payback period does not consider the time value of money, and the discounted payback period at a 10% rate of return for project A is not 2.65 years. The discounted cash flows need to be calculated to determine the correct discounted payback period.

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