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

question 80

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 10 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 discounted payback decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000\end{array}$$

• A) Discounted payback = 4.29 years, accept the project
• B) Discounted payback = 3.97 years, accept the project
• C) Discounted payback > 4.5 years, reject the project
• D) Discounted payback = 4.4 years, accept the project

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Definitions:

Job Demands

The aspects of a job that require physical and mental effort, which can influence an individual's stress levels and overall well-being.

Probability of Death

A statistical measure that estimates the likelihood of dying from various causes or in various circumstances.

Burnout

A state of physical, emotional, and mental exhaustion caused by prolonged stress and overwhelm, typically in a work context.

Cynicism

An attitude characterized by skepticism towards motives or virtues of others, often manifesting as distrust or pessimism.