Assume a project has an initial cost of $207,600 and cash flows of $62,100,$99,100,and $105,300 for Years 1 to 3,respectively.The required discount rate is 11 percent,the required payback period is 3 years,and the required AAR is 13 percent.Should this project be accepted based on the two most commonly used methods of analysis by large firms? Justify your answer.
A)Accept based on the positive NPV but reject based on the payback period.
B)Accept based on the positive NPV and an IRR that exceeds the required discount rate.
C)Reject based on the negative NPV and the long payback period.
D)Accept based on payback and an IRR that exceeds the required discount rate.
E)Reject based on the negative NPV and an IRR that is less than the required rate of return.

Question

Quizplus · Accepted Answer

The two most commonly used methods are NPV and IRR. NPV = -$207,600 + $62,100 / 1.11 + $99,100 / 1.11² + $105,300 / 1.11³ = $5,772.18 0 = -$207,600 + $62,100 / (1 + IRR)+ $99,100 / (1 + IRR)+ $105,300 / (1 + IRR) IRR = 12.46%

Assume a Project Has an Initial Cost of $207,600 and Cash