Miller's Is Considering a 2-Year Expansion Project That Will Require

question 59

Multiple Choice

Miller's is considering a 2-year expansion project that will require $398,000 up front.The project will produce cash flows of $361,000 and $114,000 for Years 1 and 2,respectively.Based on the profitability index (PI) rule,should the project be accepted if the discount rate is 12 percent? Should it be accepted if the discount rate is 17 percent?

• A)Yes; Yes,because the PI is 1.2
• B)Yes; No,because the PI is 0.98
• C)No; Yes,because the PI is 0.98
• D)No; No,because the PI is 1.2
• E)Yes; Yes,because the PI is 1.19

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Definitions:

Asset

Resources owned by a business or individual that have economic value or future benefit.

Liability Account

A liability account records the obligations or debts a company owes to others, such as loans, accounts payable, and mortgages.

Asset Account

An account on a company's balance sheet that represents a resource with economic value owned or controlled with the expectation that it will provide future benefit.

Expense Account

An account that tracks money spent on business operations, often categorized for budgeting and tax purposes.