Your Firm Is Considering an Investment That Will Cost $920,000

question 87

Multiple Choice

Your firm is considering an investment that will cost $920,000 today.The investment will produce cash flows of $450,000 in year 1,$270,000 in years 2 through 4,and $200,000 in year 5.The discount rate that your firm uses for projects of this type is 11.25%.What is the investment's profitability index?

• A) 1.21
• B) 1.26
• C) 1.43
• D) 1.69

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Definitions:

Industry Life Cycle

This concept describes the stages of a business sector's development from its initial entrance (introduction), through growth and maturity, to eventual decline.

Barriers To Entry

Obstacles that make it difficult for new competitors to enter a market, such as high start-up costs or complex regulations.

Industry Life Cycle

The Industry Life Cycle outlines the stages of growth, saturation, and decline that industries experience over time, affecting business strategies and market dynamics.

Dividend Payout Yields

The ratio of a company's annual dividends per share to its share price, indicating the amount of dividend income generated by each dollar invested.