Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.
Time 0 1 2 3 4 5 6
Cash Flow -1,150 30 570 770 770 370 770
Use the payback decision rule to evaluate this project; should it be accepted or rejected?
2.71 years, reject
4.00 years, reject
1.04 years, accept
0 years, accept