You Would Like to Invest in the Following Project

question 40

Multiple Choice

You would like to invest in the following project. Victoria,your boss,insists that only projects that can return at least $1.10 in today's dollars for every $1 invested can be accepted.She also insists on applying a 10% discount rate to all cash flows.Based on these criteria,you should:

• A)accept the project because it returns almost $1.22 for every $1 invested.
• B)accept the project because it has a positive PI.
• C)accept the project because the NPV is $2,851.
• D)reject the project because the PI is 1.05.
• E)reject the project because the IRR exceeds 10%.

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Definitions:

Base Year

A specific year chosen as a point of reference or benchmark for financial or economic data comparison over time.

Laspeyres Index

A measure of price inflation that calculates the relative price change of a fixed basket of goods and services at current prices compared to the prices of the same basket in a base period.

Price Levels

The overall average price of all goods and services made in the economy.

Consumption Levels

The amount of goods and services consumed by an individual or population.