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 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years, respectively. $$\begin{array} { | l | c | c | c | c | c | c | }
\hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \
\hline
\end{array}$$
A)0.23 years, accept
B)1.77 years, accept
C)2 years, accept
D)4.33 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 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years, respectively. $$\begin{array} { | l | c | c | c | c | c | c | } 
\hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \
\hline
\end{array}$$
A)0.23 years, accept
B)1.77 years, accept
C)2 years, accept
D)4.33 years, reject

Quizplus · Accepted Answer

The payback period is 1.77 years, which is less than the maximum allowable payback of 2 years, so the project is accepted.

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