Elderkin & Martin Is Considering an Investment Which Will Cost

question 298

Multiple Choice

Elderkin & Martin is considering an investment which will cost $259,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $58,000. This inflow will
Increase to $150,000 and then $200,000 for the following two years before ceasing permanently.
The firm requires a 14 percent rate of return and has a required discounted payback period of three
Years. The firm should _____ the project because the discounted payback period is _____ years.
Accept or reject this project? Why?

• A) accept; 2.26
• B) accept; 2.49
• C) accept; 3.96
• D) reject; 3.26
• E) reject; 3.96

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Definitions:

Highest Success Rate

Refers to the scenario or method that achieves the desired outcomes or objectives most consistently over others.

Lowest Amount

The minimum quantity or degree of something, often referring to the least amount of money or resources required.

Growth Strategy

Plans and actions aimed at increasing the scale and scope of a business's operations to drive higher profits and market share.

Market Penetration

A growth strategy where a company aims to increase sales of existing products or services in its current markets, often through competitive pricing, advertising, and promotions.