Ginny Trueblood is considering an investment which will cost her $120,000.The investment produces no cash flows for the first year.In the second year the cash inflow is $35,000.This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently.Ginny requires a 10% rate of return and has a required discounted payback period of three years.Ginny should _____ this project because the discounted payback period is ____.
A)accept;2.03 years
B)accept;2.97 years
C)accept;3.97 years
D)reject;3.03 years
E)reject;3.97 years

Question

Ginny Trueblood is considering an investment which will cost her $120,000.The investment produces no cash flows for the first year.In the second year the cash inflow is $35,000.This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently.Ginny requires a 10% rate of return and has a required discounted payback period of three years.Ginny should _____ this project because the discounted payback period is ____.
A)accept;2.03 years 
B)accept;2.97 years 
C)accept;3.97 years 
D)reject;3.03 years 
E)reject;3.97 years

Quizplus · Accepted Answer

Ginny should reject the project since the payback period of 3.97 years exceeds the required 3 years.

Ginny Trueblood Is Considering an Investment Which Will Cost Her