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  3. project y time    cash flow 0    -5,000 1 500

Project Y Time    Cash Flow 0    -5,000 1 500 2 2000 3    3000 4 1500 5    500 Compute the...

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Finance

Project Y
Time    Cash Flow

0    -5,000

1 500

2 2000

3    3000

4 1500

5    500

Compute the discounted payback statistic for Project Y andrecommend whether the firm should accept or reject the project withthe cash flows shown in the table if the appropriate cost ofcapital is 12 percent and the
maximum allowable discounted payback is 3.5 years.

A. 3.00 years, accept
B. 3.45 years, accept

C. 3.86 years, accept
D. 3.45 years, reject

E. 3.86 years, reject

Answer & Explanation Solved by verified expert
3.9 Ratings (774 Votes)

Discounted PBP
Time Amount PVf at 12% PV Cumulative
                                                          -                (5,000.00)                    1.0000              (5,000.00)                  (5,000.00)
                                                     1.00                    500.00                    0.8929                    446.43                  (4,553.57)
                                                     2.00                2,000.00                    0.7972                1,594.39                  (2,959.18)
                                                     3.00                3,000.00                    0.7118                2,135.34                     (823.84)
                                                     4.00                1,500.00                    0.6355                    953.28                        129.43
                                                     5.00                    500.00                    0.5674                    283.71                        413.15
Discounted PBP = 3 + 823.84/953.28
Discounted PBP = 3 + .86 Years
Discounted PBP = 3.86 Years
E. 3.86 years, reject since it is more than maximum allowable discounted payback is 3.5 years.

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Transcribed Image Text

Project YTime    Cash Flow0    -5,0001 5002 20003    30004 15005    500Compute the discounted payback statistic for Project Y andrecommend whether the firm should accept or reject the project withthe cash flows shown in the table if the appropriate cost ofcapital is 12 percent and themaximum allowable discounted payback is 3.5 years.A. 3.00 years, acceptB. 3.45 years, acceptC. 3.86 years, acceptD. 3.45 years, rejectE. 3.86 years, reject

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