Suppose Your Firm Is Considering Investing in a Project with the Cash

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half four and a half years, respectively. Use the payback decision to evaluate this project; should it be accepted or rejected? $$\begin{array} { | l | l | l | l | l | l | l | l | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \begin{array} { l } \text { Cash } \\\text { Flow }\end{array} & - \$ 5,000 & \$ 1,300 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000 \\\hline\end{array}$$

A) Payback = 4.44 years; reject
B) Payback = 3.44 years; accept
C) Payback = 3.54 years; reject
D) Payback = 3.24 years; reject