Atlantic, Inc

question 124

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:

Expected ROE

The anticipated return on equity, which measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Market-capitalization Rate

The discount rate derived from the market capitalization of a company, used to determine the present value of its future earnings.

Product Life Cycles

The stages through which goods typically go through from development to withdrawal from the market, including introduction, growth, maturity, and decline.

Required Rate Of Return

This is the minimum annual percentage earned by an investment that will entice individuals or companies to put money into a particular project or investment.