Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3

Management Dec 15, 2020

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.

Cash flow

Time 0 -$235,000

Time 1 $65,800

Time 2 $84,000

Time 3 $141,000

Time 4 $122,000

Time 5 $81,200

Use the discounted payback decision rule to evaluate this project and provide calculations; should it be accepted or rejected and explain why?

Expert Solution

The project should be accepted as maximum allowable discounted payback statistics for your company is 3.5 years while discounted payback period is 3.06 years which is less than maximum allowable discounted payback period.

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