Suppose Your Firm Is Considering Investing in a Project with the Cash

question 108

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the NPV decision to evaluate this project; should it be accepted or rejected?

• A) NPV = $1,766.55; accept the project
• B) NPV = $892.19; accept the project
• C) NPV = $1,288.94; accept the project
• D) NPV = -$104.73; reject the project

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Definitions:

Inventory Item

An inventory item refers to any goods or merchandise kept on hand by a business for the purpose of resale to customers.

Physical Inventory

A count of all inventory a business physically has in its possession at a specific point in time.

Income Statement

A financial statement that shows a company's revenues, expenses, and net income or loss over a specific period of time, providing insight into its profitability.

Inventory Turnover Ratio

A metric indicating how often a company sells and replaces its stock of goods during a particular period.