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

question 101

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 NPV decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000\end{array}$$

• A)NPV = $1,766.55; accept the project
• B)NPV = $892.19; accept the project
• C)NPV = $1,288.94; accept the project
• D)NPV = -$104.73; reject the project

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Definitions:

Terrorism

The use of violence or threats to intimidate or coerce, especially for political purposes, targeting civilians to achieve goals.

Innocent Citizens

Individuals who are not involved in any criminal activity or wrongdoing but may be affected by such activities or by the criminal justice system.

Social Inequality

The presence of disparate opportunities and benefits for various social roles or standings within a community or society.

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Statistics that indicate the frequency or number of violent incidents within a specific time period or area.