Compute the PI Statistic for Project X and Note Whether

question 52

Multiple Choice

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
$$\begin{array} { | l | c | c | c | c | c | c | c | } \hline \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash flow: } & - 250 & 75 & 0 & 100 & 75 & 50 \\\hline\end{array}$$

• A)(-0.0977 percent, reject)
• B)(-9.77 percent, reject)
• C)(-24.41 percent, reject)
• D)24.41 percent, accept

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Definitions:

Vertical Analysis

A financial method that expresses each item within a financial statement in percentage terms of a base figure for the same time period, facilitating comparison.

Base Amount

A reference value or starting point used in financial calculations or comparisons.

Vertical Analysis

A financial analysis method that lists each line item as a percentage of a base figure within the same financial statement.

Base Amount

The initial sum of money used as a reference point or starting figure for calculations, adjustments, or comparisons.