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 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 4.0 and 4.5 years, respectively. Time: 1 Cash Flow $220000 $64000 $81500 $1000 $41200 $52010 $60010 Use the discounted payback decision rule to evaluate the project. Should the project be accepted or rejected? (Do not round intermediate calculations and round your final answers to 2 decimal places.) Multiple Choice 0 5 .98 Years; Accept O 5.98 Years; Reject O O 4.62 Years; Accept O O 4.62 Years; Reject O

Answer 1

-$220,000 year cash flows pv @ 10% present value cumulative discounted cash flows $64,000 0.9091 $81,500 0.8264 $67,355 $94,463 $1,000 0.7513 $751 $93,711 $41,200 0.6830 $28,140 - $65,571 $52,010 0.6209 $32,294 -$33,277 $60,010 0.5645 $33,874 $597 -$220,000 -$220,000 $58,182 -$161,818 discounted payback period : years 5.98 5+(33277/33874) 5.98 years, Reject