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

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Definitions:

Free Will

Free will is the concept that individuals have the ability to make choices that are not determined by past events, genetic makeup, or current environmental factors.

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The branch of psychology that studies mental processes including perception, thinking, memory, and problem-solving.

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Scientists who study the psychological adaptations of humans to the changing physical and social environment, often focusing on survival, reproduction, and behaviors that have evolved over time.

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