Parker Propulsion Company is analyzing a new project that has a projected initia
ID: 2763573 • Letter: P
Question
Parker Propulsion Company is analyzing a new project that has a projected initial cost of $175,000. The projected cash inflows for the four-year life of the project are $56,400, $61,800, $72,000 and $75,000 respectively. Parker requires a payback period of 2.5 years or less on all its projects. Based on the information gathered, this proposed project has a payback period of _________ years and Parker should ____________ the project.
a.) 2.79; accept
b.) 3.79; accept
c.) 2.46; reject
d.) 2.79; reject
e.) 3.79; reject
a.) 2.79; accept
b.) 3.79; accept
c.) 2.46; reject
d.) 2.79; reject
e.) 3.79; reject
Explanation / Answer
PBP Time Amount Cumulative - (175,000.00) (175,000.00) 1.00 56,400.00 (118,600.00) 2.00 61,800.00 (56,800.00) 3.00 72,000.00 15,200.00 4.00 75,000.00 90,200.00 PBP= 2 + 56,800/72,000 PBP= 2.79 Years d.) 2.79; reject Since company requires PBP of 2.5 Years or less it should reject the project