Question

In: Finance

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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.

Time:012345

Cash flow:–$235,000 $65,800 $84,000 $141,000 $122,000 $81,200

Compute payback in Years

Solutions

Expert Solution

Payback period
Time Cash Outflow Cumulative
                                                                         -                                       (235,000.00)      (235,000.00)
                                                                    1.00                                         65,800.00      (169,200.00)
                                                                    2.00                                         84,000.00         (85,200.00)
                                                                    3.00                                       141,000.00           55,800.00
                                                                    4.00                                       122,000.00         177,800.00
                                                                    5.00                                         81,200.00         259,000.00
Payback period = 2+ 85,200/141,000
Payback period = 2+ .60 Years
Payback period = 2.60 Years
Project should be accepted as maximum allowable payback was 3 Years

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