Ginny Trueblood Is Considering an Investment Which Will Cost Her

question 233

Multiple Choice

Ginny Trueblood is considering an investment which will cost her $120,000. The investment produces no cash flows for the first year. In the second year the cash inflow is $35,000. This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently. Ginny requires a 10 % rate of return and has a required discounted payback period of three years. Ginny should _____ this project because the discounted payback period is _____

• A) Accept; 2.03 years.
• B) Accept; 2.97 years.
• C) Accept; 3.97 years.
• D) Reject; 3.03 years.
• E) Reject; 3.97 years.

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Definitions:

Figure

A numerical or quantitative representation, often used in statistics or to illustrate data.

Maker

The party in a financial transaction responsible for creating or issuing a promissory note and promising to pay it.

Payee

The individual or entity to whom a payment is to be made or has been made.

Nonassignable

Refers to a contract or rights within a contract that cannot be transferred or delegated to another party.