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

question 79

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 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years, respectively.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000 \\\hline\end{array}$$
Use the payback decision rule to evaluate this project; should it be accepted or rejected?

• A) 0.23 years, accept
• B) 1.77 years, accept
• C) 2 years, accept
• D) 4.33 years, reject

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Definitions:

Chance

The occurrence and development of events in the absence of any obvious design or intent.

Dependent Variable

In experimentation, it's the variable being tested and measured, which is expected to change under the influence of the independent variable.

Normal Distribution

A bell-shaped curve that represents the distribution of many types of data where most occurrences take place in the middle of the range.

Experimenter Bias

A form of bias in research where the expectations or preferences of the researcher inadvertently affect the outcome of the study.