Reference no: EM13811218
Should the following project be accepted if the company requires both a
[end if]payback on discounted cash flows within three years (assuming a hurdle rate of 10%)
[end if]payback on nominal dollars within three years
Project cash flows are:
Cost of the project in year zero is $50,000
End of year one inflow = 15,000
End of year two inflow = 20,000
End of year three inflow = 25,000
End of year four inflow = 30,000
a. Yes, the project should be accepted because both the undiscounted and discounted payback periods are less than three years.
b. No, while the undiscounted cash flow payback is less than three years the payback for discounted cash flows exceeds three years.
c. No, both the undiscounted and discounted cash flow paybacks exceed three years.
d. No, while the discounted cash flow payback is less than three years the payback for undiscounted cash flows exceeds three years.
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