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

question 8

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 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the discounted payback decision to evaluate this project; should it be accepted or rejected?

• A) Discounted payback = 4.25 years; accept the project
• B) Discounted payback = 3.50 years; accept the project
• C) Discounted payback > 5 years; reject the project
• D) Discounted payback = 4.67 years; reject the project

---

Definitions:

Normally Distributed

A statistical distribution where data points are symmetrically distributed around the mean, forming a bell-shaped curve.

Standard Deviation

An indicator of the degree to which a dataset's values vary or are spread, showing the distance of the values from the average.

Probability

The measure or quantification of how likely an event is to occur, expressed as a number between 0 (impossible) and 1 (certain).

NORM.DIST

A function in statistics that returns the normal distribution for a specified mean and standard deviation.