Suppose your firm is considering investing in a project with the cash flows show
ID: 2615182 • Letter: S
Question
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 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.5 and 3.5 years, respectively.
Use the payback decision rule to evaluate this project. (Round your answer to 2 decimal places.)
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 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.5 and 3.5 years, respectively.
Explanation / Answer
Cumulative PV of cashflow will switch from negative to positive between 2 and 3
Pay back period= 3+(232/1152)
= 3.201
Project lies between 2.5 to 3.5 years
hence project can be accepted
year 0 1 2 3 4 cashflow -$4,500 $1,110 $2,310 $1,510 $1,510 Cashflow at PV @7% -$4,500 $1,037 $2,018 $1,232 $1,152 Cummulative CF PV -$4,500 -$3,463 -$1,445 -$232 $939Related Questions
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