Compute the PI Statistic for Project Q and Advise the Firm

question 85

Multiple Choice

Compute the PI statistic for Project Q and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent. $$\begin{array} { l c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & \\\text { Cash Flow } & - \$ 1,000 & \$ 250 & \$ 180 & \$ 420 & \$ 300 & \$ 100\end{array}$$

• A)The project's PI is-8.70 percent and the project should be rejected.
• B)The project's PI is -11.70 percent and the project should be rejected.
• C)The project's PI is 3.70 percent and the project should be accepted.
• D)The project's PI is 5.70 percent and the project should be accepted.Step 1: Find NPV using financial calculator: NPV = -86.95;

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Definitions:

Yields

The income return on an investment, such as the interest or dividends received, usually expressed as an annual percentage.

T-Bill

Short for Treasury Bill, a short-term government securities issued with a maturity of less than one year, considered a safe investment.

Interest Rates

They are the charges lenders impose on borrowers for the use of financial assets, restated here to highlight their critical role in finance and borrowing.

Simple Interest

Interest is calculated merely on the principal or on what part of the principal is still owed.