Compute the Discounted Payback Statistic for Project Y and Recommend

question 108

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.

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

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Definitions:

Good

An item or product that satisfies a want or need and can be transferred to others.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing their gain from the transaction.

Market Equilibrium

A market state where the quantity demanded equals the quantity supplied, leading to no pressure on the price to either rise or fall.

Good

A material item or service that satisfies a want or need and is available for sale or trade.