Compute the discounted payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent and the maximum allowable discounted payback is three years. $$\begin{array} { | l | c | c | c | c | c | c | }
\hline \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline \text { Cash flow: } & - 1,000 & 500 & 480 & 400 & 300 & 150 \
\hline
\end{array}$$
A)2.49 years, accept
B)2.98 years, accept
C)3.49 years, reject
D)4.98 years, reject

Question

Compute the discounted payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent and the maximum allowable discounted payback is three years. $$\begin{array} { | l | c | c | c | c | c | c | } 
\hline \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline \text { Cash flow: } & - 1,000 & 500 & 480 & 400 & 300 & 150 \
\hline
\end{array}$$
A)2.49 years, accept
B)2.98 years, accept
C)3.49 years, reject
D)4.98 years, reject

Quizplus · Accepted Answer

The discounted payback period is 2.49 years, which is less than the maximum allowable discounted payback of three years. Therefore, the firm should accept the project.

Compute the Discounted Payback Statistic for Project X and Recommend