Compute the PI Statistic for Project Q and Advise the Firm

question 110

Multiple Choice

Compute the PI statistic for Project Q and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent.
Project Q
$$\begin{array} { l l l l c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash Flow } & - \$ 1,000 & \$ 250 & \$ 180 & \$ 420 & \$ 300 & \$ 100\end{array}$$

• A) The project's PI is ?8.70 percent and the project should be rejected.
• B) The project's PI is ?11.70 percent and the project should be rejected.
• C) The project's PI is 3.70 percent and the project should be accepted.
• D) The project's PI is 5.70 percent and the project should be accepted.

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Definitions:

Total Utility

The total satisfaction received from consuming a certain amount of a good or service.

Marginal Utility

The supplementary value or usefulness experienced from consuming one more unit of a good or service.

Consumer Surplus

The discrepancy between the amount consumers are prepared to pay for a product or service and the actual price they pay, symbolizing the advantage to consumers.

Marginal Utility

The increased contentment or value derived from the consumption of an extra unit of a good or service.