A Project Has a Discount Rate of 15

question 42

Multiple Choice

A project has a discount rate of 15.5 percent, an initial cost of $109,200, an inflow of $56,400 in Year 1 and an inflow of $75,900 in Year 2. Your boss requires that every project return a minimum of $1.06 for every $1 invested. Based on this information, what is your recommendation on this project?

• A) Accept the project because the PI is .97
• B) Reject the project because the PI is .97
• C) Accept the project because the PI is 1.03
• D) Reject the project because the PI is 1.01
• E) Reject the project because the PI is 1.03

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Definitions:

Statement of Revenues

A financial report detailing a company or organization's sources of income over a specific period of time.

Modified Accrual

An accounting method that records revenues when they are earned and measurable and expenses when they are incurred, regardless of when cash transactions occur.

Program Revenues

Income directly generated by specific programs or services, typically reported by governmental entities to reflect how resources are tied to particular activities.

Fiscally Independent

Having the authority to raise revenue through taxation and make spending decisions independently, typically referring to governmental units.