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

question 47

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 10 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?
$$\begin{array} { l c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 & 4 \\\text { Cash Flow } & - \$ 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000\end{array}$$

• A)PI = 6.94 percent; reject the project
• B)PI =-7.52 percent; reject the project
• C)PI = -4.21 percent; reject the project
• D)PI = 5.33 percent; accept the project

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Definitions:

Suicide Risk

The possibility that an individual will attempt to take their own life, often associated with mental health conditions such as depression or anxiety.

Selective Serotonin Reuptake Inhibitor (SSRI)

A class of drugs commonly prescribed for depression and anxiety disorders, which work by increasing serotonin levels in the brain.

Adolescents

Individuals in the developmental phase between childhood and adulthood, typically ranging from ages 10 to 19, experiencing significant physical, emotional, and social changes.

Selective Serotonin Reuptake Inhibitors (SSRIs)

A class of drugs typically used as antidepressants in the treatment of major depressive disorder and anxiety disorders by increasing the level of serotonin in the brain.