Radiology Associates is considering an investment which will cost $259,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $58,000. This inflow will increase to $150,000 and then $200,000 for the following two years before ceasing permanently. The firm requires a 14 percent rate of return and has a required discounted payback period of three years. Accept or reject this project? Why?
Radiology Associates is considering an investment which will cost $259,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $58,000. This inflow will increase to $150,000 and then $200,000 for the following two years before ceasing permanently. The firm requires a 14 percent rate of return and has a required discounted payback period of three years. Accept or reject this project? Why?
Related questions
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 14 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 | -1,120 | 60 | 540 | 740 | 740 | 340 | 740 |
Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?
2.65 years, accept
3.35 years, reject
3.53 years, reject
2.57 years, accept
