Compute the PI Statistic for Project X and Note Whether

question 120

Multiple Choice

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | l | l |}\hline\text {Time: }&0&1&2&3&4&5\\\hline\text {Cash flow:}&-75&-75&0&100&75&50\\\hline\end{array}\end{array}$$

• A) 10 percent, reject
• B) 14.22 percent, accept
• C) 13.26 percent, accept
• D) 18.96 percent, accept

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Definitions:

Consistent Principle

A rule or concept that does not contradict itself and is coherent with other principles within the same theoretical framework.

Pentagonal

Having five angles and five sides; specifically referring to geometrical shapes.

Round

Characterizes an object with a circular shape or a process of rounding numbers to a specified degree of accuracy.

Concrete

Relating to objects or physical matter as opposed to abstract concepts, tangible and perceptible.