Larkin Laminating, Inc. is considering an investment that will cost $357,000. Th

Question

Larkin Laminating, Inc. is considering an investment that will cost $357,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $57,000. This inflow will increase to $198,000 and then $218,000 for the following two years, respectively, before ceasing permanently. The firm requires a 11.5 percent rate of return and has a required discounted payback period of three years. Should the project be accepted?

I got this far with the question but am uncertain if they should proceed with payback - I thought it should be reject - any thoughts or advice?

accept; the discounted payback period is 2.18 years.

accept; the discounted payback period is 2.32 years.

accept; the discounted payback period is 2.98 years.

reject; the project never pays back on a discounted basis.

I

year cf pv(cf) 0          (357,000)          (357,000) 1                        -                          -   (357,000) 2              57,000              45,848 (311,152) 3            198,000            142,837 (168,315) 4            218,000            141,045

Explanation / Answer

reject; The project never pays back on a discounted basis.

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