Suppose your firm is considering investing in a project with the cash flows shown below, that...

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Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 11 percent, and that the maximumallowable payback and discounted payback statistics for yourcompany are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cashflow: –$240,000, $66,300, $84,500, $141,500, $122,500, $81,700

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4.0 Ratings (773 Votes)

i	ii	iii		iv	v=iv*ii	vi
year	Cash flow	Cumulative cash flow		PVIF @ 11%	present value	Cumulative present value
0	(240,000)	(240,000)		1.0000	(240,000)	(240,000)
1	66,300	(173,700)		0.9009	59,730	(180,270)
2	84,500	(89,200)		0.8116	68,582	(111,688)
3	141,500	52,300		0.7312	103,464	(8,225)
4	122,500	174,800		0.6587	80,695	72,470
5	81,700	256,500		0.5935	48,485	120,955
NPV =					120,955

Payback period =			2.63	year
=2+89200/141500

discounted payback=			3.10	year
=3+8225/80695

We can see that payback period and discounted payback period both are lower than the maximum allowable limit
Therefore project should be accepted.

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Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 11 percent, and that the maximumallowable payback and discounted payback statistics for yourcompany are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cashflow: –$240,000, $66,300, $84,500, $141,500, $122,500, $81,700

Suppose your firm is considering investing in a project with the cash flows shown below, that...

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