You are given a project with the following projected cash flows:

Year 0 = -27,000

Year 1 = 15,000

Year 2 = 15,000

Year 3 = 300,000

How long does this project take to pay back using the payback period method? Round your answer to the nearest tenth of a year (i.e. 5.5 years).

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How long does the project take to pay back using the discounted payback period method, assuming a 10% discount rate? Round your answer to the nearest tenth of a year (i.e. 5.5 years).

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Which of the following statements about this project and the two payback methods discussed in the previous questions is true?

A.

Like all projects with a positive discount rate, the payback period is shorter than the discounted payback period.

B.

The payback method would be an equally effective evaluation tool if we switched all of the signs of the cash flows (from positive to negative and vice versa).

C.

Both the payback and discounted payback methods incorporate information about the riskiness of the cash flows projected for the project.

D.

The large cash flow in year 3 is totally ignored in both the payback and discounted payback methods in this problem.

Without doing any additional calculations (other than those done for the previous three questions), what can we say about the projects IRR?

A.

Unable to determine from the information given

B.

It is greater than 10%

C.

It is less than 10%

D.

It is equal to the discount rate of 10%