Problem 13-23 Payback (LG13-2) Suppose your firm is considering investing in a p
ID: 2788151 • Letter: P
Question
Problem 13-23 Payback (LG13-2)
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 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.
Use the payback decision rule to evaluate this project. (Round your answer to 2 decimal places.)
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 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.
Explanation / Answer
Year Cash flows Cumulative cash flows 0 $ -244,000 $ -244,000 1 $ 66,700 $ -177,300 2 $ 84,900 $ -92,400 3 $ 141,900 $ 49,500 4 $ 122,900 $ 172,400 5 $ 82,100 $ 254,500 Payback period = 2.65 Years 2+92400/141900