Question

A project has the following cash flows. Should the company accept this project based on the...

A project has the following cash flows. Should the company accept this project based on the Payback Period if the firm requires a payback of 3.0 years?

Year Cash Flow

0 -$28,000

1 11,600

2 11,600

3 6,500

4 6,500

Yes, because the Payback Period is 3.33 years
Yes, because the Payback Period is 2.74 years
No, because the Payback Period is 2.74 years
Yes, because the Payback Period is 2.49 years

Homework Answers

Answer #1
Year 0 1 2 3 4
Cashflow         (28,000)      11,600      11,600         6,500         6,500
Cumulative cashflow         (28,000)    (16,400)      (4,800)         1,700         8,200

Payback Period = last period with negative cash flow (A) + (absolute value of cumulative cash flow at the end of the period A / total cash flow during the period after A)

Here year 2 is the last period with negative cash flow .

Payback Period = 2 + (4800/6500)

= 2 +.74

Payback Period = 2.74 years

Company accept this project, because the Payback Period is 2.74 years which is lower than the required payback of 3 years

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or...
Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable discounted payback is 3 years. Time: 0 1 2 3 4 5 Cash flow: -1,000 500 480 400 300 150 2.98 years,accept 4.98 years, reject 3.49 years, reject 2.49 years, accept
A company has a project with the following cash flows (in Millions). The WACC for the...
A company has a project with the following cash flows (in Millions). The WACC for the company is 7.5%. year cash flow 1 $(20,000.00) 0 $2,000.00 2 $ 5,000.00 3 $12,000.00 4 $12,000.00 5 $9,000.00 What is the payback period for this project? A. 2.08 years B. 3.08 years C. 4.08 years D. 3.99 years
Suppose your firm is considering investing in a project with the cash flows shown below, that...
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 -1,150 30 570 770 770 370 770 Use the discounted payback decision rule to evaluate this project; should it be accepted...
Suppose your firm is considering investing in a project with the cash flows shown below, that...
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 -1,150 30 570 770 770 370 770 Use the discounted payback decision rule to evaluate this project; should it be accepted...
Guerilla Radio Broadcasting has a project available with the following cash flows : Year | Cash...
Guerilla Radio Broadcasting has a project available with the following cash flows : Year | Cash Flow 0 −$14,600 1 6,000 2 7,300 3 5,300 4 5,100 What is the payback period? A) 2.62 B) 1.75 C) 2.25 D) 3.00 E) 2.49
Compute the Payback statistic for Project X and recommend whether the firm should accept or reject...
Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent and the maximum allowable payback is 4 years. Time: 0 1 2 3 4 5 Cash flow: -3,100 950 700 850 725 625 Multiple Choice 3.83 years, Reject 2.83 years, Accept 2.83 years, Reject 3.83 years, Accept
Compute the Payback statistic for Project X and recommend whether the firm should accept or reject...
Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent and the maximum allowable payback is 4 years.   Time: 0 1 2 3 4 5   Cash flow: -2,100 350 700 800 750 525
​(Discounted payback period​) Sheinhardt Wig Company is considering a project that has the following cash​ flows:...
​(Discounted payback period​) Sheinhardt Wig Company is considering a project that has the following cash​ flows: If the​ project's appropriate discount rate is 9 ​percent, what is the​ project's discounted payback​ period? The​ project's discounted payback period is nothing years. ​(Round to two decimal​ places.) YEAR   PROJECT CASH FLOW 0   -60,000 1   20,000 2   50,000 3   65,000 4   55,000 5   40,000
Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or...
Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable discounted payback is 3 years.   Time: 0 1 2 3 4 5   Cash flow: -1,000 400 580 500 400 250 3.42 years, reject 4.72 years, reject 2.42 years, accept 2.72 years, accept
Based on the profitability index (PI) rule, should a project with the following cash flows be...
Based on the profitability index (PI) rule, should a project with the following cash flows be accepted if the discount rate is 8%? Why Year or why not? Cash Flow $18,600 S10,000 I$7,300 I$3,700 2 yes,because the Pl is 1.008 yes; because the Pl is 0.992. yes; because the Pl is 0.999 no; because the Pl is 1.008 no because the Pl is 0,992