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

question 80

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 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the discounted payback decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000\end{array}$$

• A) Discounted payback = 4.29 years, accept the project
• B) Discounted payback = 3.97 years, accept the project
• C) Discounted payback > 4.5 years, reject the project
• D) Discounted payback = 4.4 years, accept the project

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Definitions:

Operations Function

Operations function involves the management of processes and systems within an organization that produce goods or services efficiently and effectively.

Consumer Consumption

The process by which consumers buy and use goods and services.

Finished Products

Goods that have completed all stages of production and are ready for sale to customers.

Converting Labor

The process of transforming labor into tangible outputs, typically in manufacturing or production environments.