Question

You are considering a project with an initial cost of $35,000 and cash inflows of $20,000, $15,000, $10,000, and $5,000 over the next four years, respectively. If you require a 13% rate of return and have somehow decided on an appropriate discounted payback period of 3.5 years, should you accept this project? Why or why not?

Group of answer choices

A. Yes, because the discounted payback period is over 3.5 years

B. No, because the discounted payback period is over 3.5 years

C. Yes, because the discounted payback period is less than 3.5 years

D. No, because the discounted payback period is less than 3.5 years

Answer 1

Year	Cash flows	Present value@13%	Cumulative Cash flows
0	(35000)	(35000)	(35000)
1	20,000	17699.12	(17300.88)
2	15000	11747.20	(5553.68)
3	10,000	6930.50	1376.82
4	5000	3066.59	4443.41

Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=2+(5553.68/6930.50)

=2.80 years(Approx)

Hence since discounted payback is less than 3.5 years;project must be accepted.

Hence the correct option is:

Yes, because the discounted payback period is less than 3.5 years