A Project Manager Is Using the Payback Method to Make

question 49

Multiple Choice

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the discounted payback of a project that has cash flows as shown in the table? $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 100,000 \\\hline 1 & \$ 20,000 \\\hline 2 & \$ 50,000 \\\hline 3 & \$ 50,000 \\\hline 4 & \$ 25,000 \\\hline 5 & \$ 500,000 \\\hline\end{array}$$

• A) 3.4 years
• B) 2.6 years
• C) 5.0 years
• D) 4.2 years

---

Definitions:

Total Revenue

The overall amount of money generated from sales of goods or services before any expenses are subtracted.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the overall financial gain of a business.

Own Capital

Refers to the funds or resources that a business owner personally invests in their enterprise, as opposed to borrowed capital.

Fixed Factor

An input to the production process that cannot be easily increased or decreased in the short term.