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

question 18

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - 100,000 & 30,000 & 45,000 & 55,000 & 30,000 & 10,000 \\\hline\end{array}$$

• A)(-10.60 percent, reject)
• B)10.60 percent, accept
• C)(-15.33 percent, reject)
• D)15.33 percent, accept

---

Definitions:

Reasonable Efforts

A legal standard that requires a party to act with fair, honest, and diligent efforts to fulfill an obligation.

Actual Authority

The specific powers that a principal has expressly given to an agent to make decisions on their behalf.

Agency Relationship

A legal and fiduciary relationship between two parties, where one person (the agent) is authorized to perform acts or make decisions on behalf of another (the principal).

Commissions

Fees paid to agents or salespeople for facilitating transactions or sales.