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Category > Accounting Posted 27 May 2017 My Price 6.00

Larkin Laminating, Inc. is considering an investment that will cost $357,000

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?

 

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?

 

 

year cf pv(cf)  
0 (357,000) (357,000)  
1 - - (357,000)
2 57,000 45,848 (311,152)
3 198,000 142,837 (168,315)
4 218,000 141,045  

 

   

accept; the discounted payback period is 2.18 years.
   

accept; the discounted payback period is 2.32 years.
   

accept; the discounted payback period is 2.98 years.

 

    
   

reject; the project never pays back on a discounted basis.

 

I

Answers

Alpha Geek
(8)
Status NEW Posted 27 May 2017 05:05 PM My Price 6.00

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