Suppose Your Firm Is Considering Investing in a Project with the Cash

question 34

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the NPV decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

• A) NPV = $1,766.55, accept the project
• B) NPV = $892.19, accept the project
• C) NPV = $1,288.94, accept the project
• D) NPV = ?$104.73, reject the project

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Definitions:

Poisoning the Well

A logical fallacy where adverse information about a target is preemptively presented to an audience, with the intention of discrediting or ridiculing everything the target person is about to say.

Motives

The reasons or motivations behind one's actions or behavior.

Reasoning

The act of analyzing something systematically to arrive at a decision or evaluation.

Ad Hominem Fallacy

A fallacy that attacks the person making an argument rather than the argument itself, aiming to discredit the argument by discrediting its proponent.