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 statistics for the project are three and a half four and a half years, respectively. Use the payback decision to evaluate this project; should it be accepted or rejected? What is the payback period?
Time 0 1 2 3 4 5 6
Cash Flow -5,000 1,300 1,4000 1,600 1,600 1,100 2,000