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You are analyzing a proposed project and have compiled the following information: Year Cash flow 0 -$145,000 1 $ 33,400 2
You are analyzing a proposed project and have compiled the following information: Year Cash flow 0 -$145,000 1 $ 33,400 2. $ 70,500 3 $ 82,100 Required payback period 3 years Required return 9.50 percent Should the proposed project be accepted based on the payback period? Why or why not? yes: The payback period is greater than the required payback period. yes: The payback period is less than the required payback period no; The payback period is greater than the required payback period. no: The payback period is less than the required payback period. Not enough information to answer
Expert Solution
ANSWER
B.YES THE PAYBACK PERIOD IS LESS THAN THE REQUIRED PAYBACK PERIOD
| year | cash flow |
| 0 | -145000.00 |
| 1 | 33400 |
| 2 | 70500.00 |
| 3 | 82100.00 |
after 2 years outflows left are = 41,100
therefore for last year = 82,100 / 41,100 = 0.5
payback period = 2 +0.5 = 2.5 years which is less than 3 years
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