Suppose Your Firm Is Considering Investing in a Project with the Cash

question 104

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

• A) 1.23 years, accept
• B) 2.45 years, accept
• C) 2.77 years, accept
• D) 5.36 years, reject