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

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 and recommend whether the firm should accept or reject the project with the cash flows shown in the table if the appropriate cost of capital 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

Expert Solution

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.

jeff jeffy answered 3 months ago

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