Compute the Discounted Payback Statistic for Project Y and Recommend

question 66

Multiple Choice

Compute the discounted payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback is three years.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-5,000&500&2,000&3,000&1,500&500\\\hline\end{array}\end{array}$$

• A) 3.45 years, reject
• B) 3.86 years, reject
• C) 3.45 years, accept
• D) 3.86 years, accept

---

Definitions:

Optimal Cost

The lowest possible cost at which a particular set of goods or services can be produced or acquired, taking into consideration factors such as efficiency and resource allocation.

Double-subscripted Variables

Variables in mathematical modeling that are indexed by two subscripts, often used to represent elements in matrices or two-dimensional arrays.

Price Range

The difference between the highest and lowest prices at which a commodity or service is traded over a particular period of time.