You are evaluating a project that will cost $ 546 comma 000, but is expected to produce cash flows of $ 127 comma 000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11.1 % and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company?

A 4.3 years

B. The company shouldn't carry out the project because the payback period is greater than the preferred payback period.

Explanation:

Payback period calculates the amount of time it takes to recover the amount invested in a project from its cumulative cash flows.

Payback period = amount invested / cash flows

$546,000 / $127,000 = 4.3 years

The company shouldn't carry out the project because the payback period is greater than the preferred payback period.

I hope my answer helps you

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