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 14 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time 0 1 2 3 4 5 6 Cash Flow -960 160 440 640 640 240 640 Use the payback decision rule to evaluate this project; should it be accepted or rejected?
Cumulative cash flow in year 1= $160
Cumulative cash flow in year 2= $600
Payback period= full years until recovery + unrecovered cost at the start of the year/ cash flow during the year
= 2 years + ($960 - $600)/ $640
= 2 years + 360/ $640
= 2 years + 0.56
= 2.56 years.
The project should be rejected since the payback period of the project is higher than the maximum allowable payback period of 2 years.
In case of any query, kindly comment on the solution.
Suppose your firm is considering investing in a project with the cash flows shown below, that...
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 14 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time Cash Flow 0 -960 1 160 2 440 3 640 4 640 5 240 6 640 Use the payback decision rule to evaluate this project; should it be accepted or...
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 13 percent, and that the maximum
allowable payback and discounted payback statistic for the project
are 2 and 3 years, respectively.
Use the payback decision rule to evaluate this project; should
it be accepted or rejected?
Suppose your firm is considering investing in a project with the cash flows shown below, that...
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 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively Time Cash Flow 0 1 2 -980180420 3 620 4 620 5 220 6 620 Use the discounted payback decision rule to evaluate this project should it be accepted or rejected?
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