You Estimate That a Project Will Cost $33,700 and Will

question 108

Multiple Choice

You estimate that a project will cost $33,700 and will provide cash inflows of $14,800 in Year 1 and $24,600 in Year 3. Based on the profitability index rule, should the project be accepted if the discount rate is 14.2 percent? Why or why not?

• A) Yes; The PI is .87.
• B) Yes; The PI is .93.
• C) Yes; The PI is 1.06.
• D) No; The PI is 1.06.
• E) No; The PI is .87.

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Definitions:

Planned Economy

An economic system where the government controls and regulates production, distribution, and prices.

Laissez-Faire Economy

an economic system with minimal government intervention, where transactions are dictated by private parties.

Central Direction

The control of economic or organizational activity by a central authority or government.

Past Income

The amount of money earned in preceding periods, often used to assess financial stability or creditworthiness.