Project Acceptance
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Payback. A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years. The firm accepts projects with payback periods of less than 5 years.
Will the project be accepted?
Should this project be pursued if the discount rate is 2 percent?
What if the discount rate is 12 percent?
Will the firm's decision change as the discount rate changes?
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Solution Summary
The solution explains the calculation of payback period and the acceptance/rejection decision as the discount rate is changed.
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The payback period is the time taken to recover the initial investment. The initial investment is $2,500. The cash flow per year is 600. For $2,500 ...
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