Compute the discounted payback statistic for Project C if the appropriate cost o

Question

Compute the discounted payback statistic for Project C if the appropriate cost of capital is 9 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Should the project be accepted or rejected?

Compute the discounted payback statistic for Project C if the appropriate cost of capital is 9 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

Cash flow PV cumulative at the end of 1 year=-1500+680/1.09^1=-876.15

Cash flow PV cumulative at the end of 2 year=-1500+680/1.09^1+630/1.09^2=-345.89

Cash flow PV cumulative at the end of 3 year=-1500+680/1.09^1+630/1.09^2+670/1.09^3=171.47

Cash flow PV of year 3 cash flows=670/1.09^3=517.36

DPB=2+345.89/517.36=2.67 YEARS

ACCEPT AS IT IS LESS THAN 3 YEAR

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