Question

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively
Time                                    0                     1             2                          3                4                                5

Cash Flow                        -100,000        30,000        45,000            55,000          30,000                    10,000

Calculate the payback and use the payback decision rule to evaluate this project; should it be accepted or rejected? Show your calculations.

Answer 1