Question
Sears is considering investing $40,000 in a project that promises $13,000 per year in after-tax cash inflows for 5 years. If the cost of capital
Sears is considering investing $40,000 in a project that promises $13,000 per year in after-tax cash inflows for 5 years. If the cost of capital is 16% per year and the company's president requires that all independent projects have a discounted payback period of 4-year or less, should the company invest in this project? What's the project's discounted payback period?
| 1. | This project has a discounted payback period of 4.57 years. Since this number exceeds the target discounted payback period, the company should not invest. | |
| 2. | This project has a discounted payback period of 3.08 years. Since this number is lower than the target discounted payback period, the company should invest. | |
| 3. | This project has a discounted payback period of 4.57 years. Since this number exceeds the target discounted payback period, the company should invest. | |
| 4. | This project has a discounted payback period of 3.08 years. Since this number is lower than the target discounted payback period, the company should not invest. |
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Fundamentals Of Corporate Finance
Authors: Jonathan Berk, Peter DeMarzo, Jarrod Harford, David Stangeland, Andras Marosi
3rd Canadian Edition
0135418178, 978-0135418178
