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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively.

Time:	0	1	2	3	4	5
Cash Flow:	–$357,000	$65,600	$83,800	$140,800	$121,800	$81,000

Use the NPV decision rule to evaluate this project.

Should it be accepted or rejected?

Answer 1

As the project can be accepted because the NPV is positive.