Question
Use this information to answer the next six questions. If a particular decision method should not be used, indicate why. Suppose your firm is considering
Use this information to answer the next six questions. If a particular decision method should not be used, indicate why.
Suppose your firm is considering investing in a project with the cash flows shown below, 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 3.5 and 4.5 years, respectively.
Time: 0 1 2 3 4 5 6
Cash flow: -$5,000 $1,200 $2,400 $1,600 $1,600 $1,400 $1,200
Use the payback decision rule to evaluate this project; should it be accepted or rejected?
Use the IRR decision rule to evaluate this project; should it be accepted or rejected?
Use the NPV decision rule to evaluate this project; should it be accepted or rejected?
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