A Project Manager Is Using the Payback Method to Make

question 92

Multiple Choice

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 15% required rate of return and expects a 5% 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? $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & -\$ 500,000 \\\hline 1 & \$ 50,000 \\\hline 2 & \$ 75,000 \\\hline 3 & \$ 150,000 \\\hline 4 & \$ 150,000 \\\hline 5 & \$ 750,000 \\\hline\end{array}$$

• A)3.9 years
• B)4.3 years
• C)4.6 years
• D)4.1 years

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Definitions:

Insurance

A contractual arrangement in which a company (insurer) provides compensation or coverage against losses or damages in return for payment of a premium.

Adjusting Entry

A journal entry made in accounting records at the end of an accounting period to allocate income and expenditures to the appropriate period.

Prepaid Expenses

Prepaid expenses are costs for goods or services that are paid in advance of the receipt or use, recognized as assets on a balance sheet.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, representing the wear and tear, or expiry of the asset's practical lifespan.