Question

Suppose your firm is considering Investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Cash flow: $235,000 $65,800 $14,000 $141,000 $122,000 $81,200 Use the payback decision rule to evaluate this project. (Round your answer to 2 decimal places.) Payback years Should the project be accepted or rejected? accepted rejected

Answer 1

Year	Cash Flow	Accumulated Cash Flow
0	-235000	-235000
1	$       65,800	$                    -1,69,200
2	$       84,000	$                        -85,200
3	$   1,41,000	$                         55,800
4	$   1,22,000	$                      1,77,800
5	$       81,200	$                      2,59,000
Payback Period =2 years + 85200/141000
	=2.60 years
Project should accepted.