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Should the project be undertaken using the payback rule

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Reference no: EM132692566

Problem 1: According to the payback rule, an investment is accepted if its calculated payback period is less than or equal to a prespecified number of years. Consider the investment below if analysed using the NPV rule. The initial cost is R6-million and the cost of capital is 10% per annum. It has been decided that the project should be accepted if the payback period is three years or less. Using the payback rule, should this project be undertaken?

Year Cash Flow Generated

1 R2-million

2 R2.25-million

3 R2.2-million

4 R2.1-million

Reference no: EM132692566

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