Sal Is Considering a Project That Costs $15,000

question 138

Multiple Choice

Sal is considering a project that costs $15,000. The project produces cash inflows of $3,000, $5,000, $7,000, and $3,000 respectively for the next four years. Sal wants to recoup his money within 3 years after applying a 6% discount rate. Sal should:

• A) Accept the project because it produces $15,534 on a discounted payback basis.
• B) Accept this project because the discounted payback period is 2.78 years.
• C) Accept this project because the payback period is exactly 3 years.
• D) Reject this project because the payback period is 2.78 years.
• E) Reject this project because the discounted payback period is 3.78 years.

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Definitions:

Acquisition

The process of acquiring control of another company by purchasing its shares or assets.

Financing Activities

Transactions and events that affect the long-term liabilities and equity of a firm, as reported in the cash flow statement.

Cash Dividends

Profits distributed to shareholders of a company in the form of cash payouts.

Treasury Stock

Shares that were once part of the outstanding shares of a company but were bought back by the company and are held in the company's treasury.