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 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

Time	0	1	2	3	4	5	6
Cash Flow	-980	180	420	620	620	220	620

Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

A. $-374.82, reject

B. $705.18, accept

C. $1,769.81, accept

D. $789.81, accept

Answer 1

	12.0000%
Cash flows	Year	Discounted CF
(980.00)	0	-980.00
180.00	1	160.71
420.00	2	334.82
620.00	3	441.30
620.00	4	394.02
220.00	5	124.83
620.00	6	314.11

NPV = 789.81, accept