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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Larkin Laminating, Inc. is considering an investment that will cost $357,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $57,000. This inflow will increase to $198,000 and then $218,000 for the following two years, respectively, before ceasing permanently. The firm requires a 11.5 percent rate of return and has a required discounted payback period of three years. Should the project be accepted?
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I got this far with the question but am uncertain if they should proceed with payback - I thought it should be reject - any thoughts or advice?
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| year | cf | pv(cf) | Â |
| 0 | (357,000) | (357,000) | Â |
| 1 | - | - | (357,000) |
| 2 | 57,000 | 45,848 | (311,152) |
| 3 | 198,000 | 142,837 | (168,315) |
| 4 | 218,000 | 141,045 | Â |
Â
| Â | Â |
accept; the discounted payback period is 2.18 years. |
| Â | Â |
accept; the discounted payback period is 2.32 years. |
| Â | Â |
accept; the discounted payback period is 2.98 years. |
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 |  |
| Â | Â |
reject; the project never pays back on a discounted basis. |
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