Consider the Following Four-Year Project

question 20

Multiple Choice

Consider the following four-year project.The initial after-tax outlay or after-tax cost is $1,000,000.The future after-tax cash inflows for years 1,2,3 and 4 are: $400,000,$300,000,$200,000 and $200,000,respectively.What is the payback period without discounting cash flows?

• A)2.5 years
• B)3.0 years
• C)3.5 years
• D)4.0 years

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Definitions:

Depreciation Expense

A non-cash charge that reduces the value of fixed assets due to wear, tear, or obsolescence over time.

Accounting Sense

Pertains to the manner in which financial transactions are recorded and understood within the realm of accounting.

Financial Sense

Pertains to the practical and prudent management of money and financial resources to achieve set goals effectively.

Operating Cash Flow

Cash generated from the core business operations of a company, excluding financing and investing activities.