Jordan Enterprises is considering a capital expenditure that requires an initial investment of $73,000 and returns after-tax cash inflows of $12,078 per year for 10 years

The answer to part a is that the project has a payback period of 6.04 years and the answer to part b is D. The company should accept the project since the payback period is less than the maximum.

A payback period where the cash inflows are all the same (as in this problem) is calculated using the following formula:

[Math Processing Error]Payback=Initial InvestmentCash Inflow Per Year

Substituting 73,000 for the Initial Investment and 12,078 for the Cash Inflows Per Year gives us:

[Math Processing Error]Payback=73,00012,078=6.04

For part b, we are told that Jordan Enterprises has a maximum acceptable payback period of 8 years. Since 6.04 years is less than 8 years, this project is acceptable to the company. Looking at the 4 choices for part b, we can immediately discard A, B, and C because this is an acceptable investment. Part E states that the company should accept the project, but it should do so because the cash flows occur for more years than is acceptable. This is also not the correct answer because it's not the cash flows that are acceptable to Jordan Enterprises, it's the payback period. Choice D. The company should accept the project since the payback period is less than the maximum is the correct choice.