Elderkin & Martin Is Considering an Investment Which Will Cost

Multiple Choice

Elderkin & Martin is considering an investment which will cost $259,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $58,000. This inflow will
Increase to $150,000 and then $200,000 for the following two years before ceasing permanently.
The firm requires a 14 percent rate of return and has a required discounted payback period of three
Years. The firm should _____ the project because the discounted payback period is _____ years.
Accept or reject this project? Why?

A) accept; 2.26
B) accept; 2.49
C) accept; 3.96
D) reject; 3.26
E) reject; 3.96