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

question 21

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 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years, respectively. $$\begin{array} { l l l l l l l } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash Flow } & - 125,000 & 65,000 & 78,000 & 105,000 & 105,000 & 25,000\end{array}$$ Use the payback decision rule to evaluate this project; should it be accepted or rejected?

• A)0.23 years, accept
• B)1.77 years, accept
• C)2 years, accept
• D)4.33 years, reject

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Definitions:

Total Utility

The total satisfaction or benefit that a person receives from consuming a particular quantity of goods or services.

Marginal Utility

The additional satisfaction or utility obtained by consuming one more unit of a good or service.

Process Innovation

The implementation of a new or significantly improved production or delivery method, enhancing efficiency or reducing costs in the manufacturing or distribution of goods and services.

Income

The financial gain or money received by an individual or entity, usually through work, investments, or business operations.