1. The cash flows associated with an investment project are as follows:

Initial Outflow

-$70,000

Year 1

$20,000

Year 2

$30,000

Year 3

$30,000

Year 4

$30,000

a) What’s the payback period of the project? If a firm’s cutoff payback period is 3 years, should it accept the project?

b) If a firm uses discounted payback with a 15% discount rate and a 3-year cutoff period, what’s the discount payback period of the project? Should the firm accept the project?

Please provide clear steps on how the answers came about. If using BAii Plus calculator, please expand on functions used.

Answer rating: 100% (QA)

a To calculate the payback period of the project we need to determine the time it takes for the cumulative cash flows to equal or exceed the initial outflow Given the cash flows Initial Outflow 70000 ... View the full answer