Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively.
Time 0 1 2 3 4 5
Cash Flow -100,000 30,000 45,000 55,000 30,000 10,000
Calculate the payback and use the payback decision rule to evaluate this project; should it be accepted or rejected? Show your calculations