J&J Enterprises is considering an investment that will cost $318,000.

The investment
produces no cash flows for the first year. In the second year, the cash inflow is $47,000.
This inflow will increase to $198,000 and then $226,000 for the following two years,
respectively, before ceasing permanently. The firm requires a 15.5 percent rate of return
and has a required discounted payback period of three years. Should the project be
accepted? Why or why not?

1)accept; The discounted payback period is 2.18 years.

2)reject; The discounted payback period is 2.18 years.
3)reject; The project never pays back on a discounted basis.
4)accept; The discounted payback period is 2.32 years.
5)accept; The discounted payback period is 2.98 years.

The project should be rejected because it never pays back on a discounted basis.

An investment project provides cash flows of $1,190 per year for 10 years. If the initial
cost is $8,000, what is the payback period?

1)5.28 years
2)8.13 years
3)never
4)3.36 years
5)6.72 years

Payback = $8,000/$1,190 = 6.72 years

A project that provides annual cash flows of $12,600 for 12 years costs $67,150 today. At
what rate would you be indifferent between accepting the project and rejecting it?

1)15.51 percent
2)15.74 percent
3)15.62 percent
4)15.40 percent
5)15.28 percent