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A project has average estimated cash flows of $3,000 per year with an initial investment of $9,000. Depreciation is straight-line with no residual value and the project has a five-year life span. The company has set a Required Rate of Return (RRR) equal to 15% and a target payback period of 2.5 years. Under which investment appraisal method(s), using the company's targets, will the project be accepted? 1. RRR 2. Payback basis

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Let's calculate the Net Present Value of the project using RRR as a discount rate:

NPV is positive, so, the project will be accepted based on this criterion. Payback period is Cost of Investment / Annual Cash Flow = $9,000 / $3,000 = 3 years. It is longer than the target period, so the project will not be accepted based on this criterion.

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