You Are Considering an Investment with the Following Cash Flows

question 231

Multiple Choice

You are considering an investment with the following cash flows. Your required return is 10%, you require a payback of three years and a discounted payback of four years. If your objective is to maximize your wealth, should you take this investment?

• A) Yes, because the payback is 2.5 years.
• B) Yes, because the discounted payback is four years.
• C) Yes, because both the payback and the discounted payback are less than two years.
• D) No, because the NPV is negative.
• E) No, because the project has a large negative cash flow at the end of its life.