China Importers Would Like to Spend $215,000 to Expand Its

question 97

Multiple Choice

China Importers would like to spend $215,000 to expand its warehouse.However, the company has a loan outstanding that must be repaid in 2.5 years and thus will need the $215,000 at that time.The warehouse expansion project is expected to increase the cash inflows by $60,000 in the first year, $140,000 in the second year, and $150,000 a year for the following 2 years.Should the firm expand at this time? Why or why not?

• A)Yes; because the money will be recovered in 1.69 years
• B)Yes; because the money will be recovered in 1.87 years
• C)Yes; because the money will be recovered in 2.10 years
• D)No; because the project never pays back
• E)No; because the money will not be recovered in time to repay the loan

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Definitions:

Covariance

A measure that indicates the extent to which two variables change together; if they increase or decrease similarly.

Coefficient Of Correlation

An index that measures the magnitude and direction of a straight-line association between two variables.

Coefficient Of Correlation

An analytical tool that evaluates the strength of the association between the relative shifts of two variables.

Independent Variables

Independent variables are the factors in an experiment that are manipulated or changed by the researcher to investigate their effects on the dependent variables.