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

question 94

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 statistic for the project are three and three and a half years, respectively.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$
Use the MIRR decision rule to evaluate this project; should it be accepted or rejected?

• A) ?10.60 percent, reject
• B) 10.60 percent, accept
• C) ?15.33 percent, reject
• D) 15.33 percent, accept

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Definitions:

Write-Offs

The deduction of an amount due (as an uncollectable debt) from an entity's revenue, thereby decreasing its income.

Insurance

A financial product that provides protection against financial losses, ensuring compensation for specified loss, damage, illness, or death in return for payment of a premium.

Accounts Payable

Liabilities of a company or organization due to purchases of goods and services to be paid to creditors or suppliers.

Adjustments

Adjustments are changes or modifications made to improve or correct something, often used in contexts ranging from accounting to spinal manipulation.