Atlantic, Inc

question 100

Multiple Choice

Atlantic, Inc. is considering a project that is expected to produce the following cash flows over the next five years: $22,500, $27,900, $41,800, $33,000, and $15,000 respectively. Atlantic has $98,000 available, which is the amount needed to initiate the project. Should Atlantic accept this project if the required rate of return is 12%? Why or why not?

• A) No; Atlantic would lose $2,407 in today's dollars if they accept the project.
• B) No; The IRR is 13.47%, which is greater than the required return.
• C) No; The PI is 1.04, which is considered a reject signal.
• D) Yes; Atlantic will make $3,567 in today's dollars if they accept the project.
• E) Yes; The PI is.96, which is considered an acceptance signal.

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Definitions:

Internal Rate Of Return

A financial metric used to evaluate the profitability of potential investments, representing the interest rate at which the net present value of all the cash flows from a project or investment equals zero.

Labor Savings

A reduction in the amount of labor required or a decrease in labor costs, often as a result of improved efficiency or automation.

Useful Life

The estimated period over which an asset is expected to be used before it is fully depreciated.

Profitability Index

A ratio that compares the present value of future cash flows of a project to its initial investment, used to assess the desirability of projects.