Compute the Payback Statistic for Project X and Recommend Whether

question 65

Multiple Choice

Compute the payback statistic for Project X and recommend 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 and the maximum allowable payback is five years. $$\begin{array} { | l | c | c | c | c | c | c | } \hline \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash flow: } & - 75 & - 75 & 0 & 100 & 75 & 50 \\\hline\end{array}$$

• A)3.67 years, accept
• B)4.67 years, accept
• C)3.67 years, reject
• D)4.67 years, reject

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Real Exchange Rate

The rate at which a person can exchange the currency of one country for the currency of another, adjusted for inflation.

Nominal Exchange Rate

The rate at which currencies are traded in the foreign exchange market, not considering differences in price levels between countries.

Domestic Price

The price of a good or service within a specific country, distinct from its price in international markets.

Depreciate

The process by which an asset's value decreases over time due to use, wear and tear, or obsolescence.