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

question 24

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 statistics for the project are three and a half and four and a half years, respectively. Use the PI decision to evaluate this project; should it be accepted or rejected? $$\begin{array} { l c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000 \\\hline\end{array}$$

• A)PI = 6.94 percent; reject the project
• B)PI = 7.52 percent; reject the project
• C)PI = 23.61 percent; accept the project
• D)PI = 35.33 percent; accept the project

---

Definitions:

Pregnant Women

Females in the state of carrying a developing embryo or fetus within the uterus.

First Stage

The initial phase of a process or sequence, often indicating the beginning of something.

Birth Process

The series of physiological and mechanical events that occur in the mother's body leading to the delivery of a baby.

First-time Mother

Describes a woman who is experiencing motherhood and the care of a newborn for the first time.