Investment = $3,000,000

Year	Cash Flows	Cumulative Cash Flows	Investment still to be covered
2021	$500,000	$500,000	- $2,500,000
2022	$700,000	$1,200,000	- $1,800,000
2023	$1,000,000	$2,200,000	- $800,000
2024	$1,000,000	$3,200,000	$200,000
2025	$800,000	$4,000,000	$1,000,000
2026	$600,000	$4,600,000	$1,600,000

Investment covered fully in the year 2024

Payback period = 3 years + [$800,000 / $1,000,000]

Payback period = 3 years + 0.80 years

Payback period = 3.80 years

Since the payback period is greater than the target payback period of 3 years, The firm should reject this investment Reject

1. Let us consider the same investment whose cost and expected cash flows are given in Question 1 using discounted payback period.

1. What is the exact payback period of that investment according to the discounted payback method if the relevant discount rate for that investment is 14%
2. Should the firm accept or reject this investment if the desired payback period of the investment is 3 years.