A Firm Is Evaluating a Potential Investment That Is Expected

question 117

Multiple Choice

A firm is evaluating a potential investment that is expected to generate cash flows of $100 in years 1 through 4 and $400 in years 5 through 7. The initial investment is $750. What is the payback for this investment?

• A) 4.88 years
• B) 4.48 years
• C) 5.88 years
• D) 5.48 years

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Definitions:

Business Risk

The potential for losses or less-than-expected returns stemming from the economic, industry, or company-specific factors.

Property Insurance

Insurance that protects property from loss or damages.

Loss Or Damage

Refers to the negative impact, destruction, or impairment of value, function, or condition of property or goods.

Insurance Proceeds

The money received from an insurance company as a payout for claims made under an insurance policy.