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 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Time: 0 1 2 3 4 5 6
Cash flow –$5,100 $1,240 $2,440 $1,640 $1,640 $1,440 $1,240
Use the discounted payback decision rule to evaluate this project.