You are evaluating a potential project for your firm. The project requires an up-front investment of $800,000 and is expected to generate cash inflows of $150,000 at the end of each of the next six years. You estimate the projects risk-adjusted WACC at 8%. Your firm has a policy of only accepting projects that recover the initial investment within two years. What is the payback period for this project? What does the payback rule say about this project? LO3

The payback period is 5.33 years. The payback rule says to reject the project.

The payback period is 5.33 years. The payback rule says to accept the project.

The payback period is 1.96 years. The payback rule says to reject the project.

The payback period is 1.96 years. The payback rule says to accept the project.