A Project Manager Is Using the Payback Method to Make

question 78

Multiple Choice

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the discounted payback of a project that has cash flows as shown in the table? $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & -\$ 100,000 \\\hline 1 & \$ 20,000 \\\hline 2 & \$ 50,000 \\\hline 3 & \$ 50,000 \\\hline 4 & \$ 25,000 \\\hline 5 & \$ 500,000 \\\hline\end{array}$$

• A)3.4 years
• B)2.6 years
• C)5.0 years
• D)4.2 years

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Definitions:

Strategic Management

The ongoing planning, monitoring, analysis, and assessment of all that is necessary for an organization to meet its goals and objectives, focusing on long-term strategic direction.

Specific

Clearly defined or identified; precise or exact.

Profitability Gap

The difference between the actual profitability of a business and its potential profitability under optimal conditions.

Investment Intensity

Indicates the level of capital required to generate revenue within a business or industry, reflecting the nature of assets and resources needed.