Elderkin& Martin Is Considering an Investment Which Will Cost $259,000

question 256

Multiple Choice

Elderkin& Martin is considering an investment which will cost $259,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $58,000. This inflow will increase to $150,000 and then $200,000 for the following two years before ceasing permanently. The firm requires a 14 % rate of return and has a required discounted payback period of three years. The firm should _____ the project because the discounted payback period is _____ years. Accept or reject this project? Why?

• A) accept; 2.26
• B) accept; 2.49
• C) accept; 3.96
• D) reject; 3.26
• E) reject; 3.96