Compute the Discounted Payback Statistic for Project X and Recommend

question 78

Multiple Choice

Compute the discounted payback statistic for Project X 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 10 percent and the maximum allowable discounted payback is three years. $$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash flow: } & - 1,000 & 500 & 480 & 400 & 300 & 150 \\\hline\end{array}$$

• A)2.49 years, accept
• B)2.98 years, accept
• C)3.49 years, reject
• D)4.98 years, reject

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Definitions:

Firm's Output

The total quantity of goods or services produced by a company over a specific period.

Shutdown Point

The level of production and price point at which a company's revenue just covers its variable costs, below which the firm would cease operations to minimize losses.

Firm's Output

The total quantity of goods or services produced by a company within a specific time period.

Lowest Price

The minimum cost at which a good or service is offered in the market, representing the least amount a seller is willing to accept.