Assume a Project Has an Initial Cost of $207,600 and Cash

question 61

Multiple Choice

Assume a project has an initial cost of $207,600 and cash flows of $62,100,$99,100,and $105,300 for Years 1 to 3,respectively.The required discount rate is 11 percent,the required payback period is 3 years,and the required AAR is 13 percent.Should this project be accepted based on the two most commonly used methods of analysis by large firms? Justify your answer.

• A)Accept based on the positive NPV but reject based on the payback period.
• B)Accept based on the positive NPV and an IRR that exceeds the required discount rate.
• C)Reject based on the negative NPV and the long payback period.
• D)Accept based on payback and an IRR that exceeds the required discount rate.
• E)Reject based on the negative NPV and an IRR that is less than the required rate of return.