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

question 101

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 PI decision rule to evaluate this project; should it be accepted or rejected?

• A) ?1.21 percent, reject
• B) 1.08 percent, accept
• C) 1.21 percent, accept
• D) 121 percent, accept

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Definitions:

Specified Date

A particular day designated for a certain event or action to take place.

Sourcing

The process of finding suppliers of goods or services, especially in a manufacturing or business context.

Procurement

The process of obtaining goods or services, typically for business purposes.

Materials Management

The branch of logistics that focuses on physically sourcing, moving, and storing materials, as well as coordinating these operations to ensure the right materials are available at the right time.