China Importers Would Like to Spend $221,000 to Expand Its

question 60

Multiple Choice

China Importers would like to spend $221,000 to expand its warehouse.However,the company has a loan outstanding that must be repaid in 2.5 years and thus will need the $221,000 at that time.The warehouse expansion project is expected to increase the cash inflows by $58,000 in the first year,$139,000 in the second year,and $210,000 a year for the following 2 years.Should the firm expand at this time? Why or why not?

• A)Yes, because the money will be recovered in 1.69 years
• B)Yes, because the money will be recovered in 1.87 years
• C)Yes, because the money will be recovered in 2.11 years
• D)No, because the project never pays back
• E)No, because the money will not be recovered in time to repay the loan