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

question 49

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 PI decision rule to evaluate this project; should it be accepted or rejected?

• A)-1.21 percent, reject
• B)1.08 percent, accept
• C)1.21 percent, accept
• D)121 percent, accept

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Definitions:

Imprisonment for Debt

The practice, now largely abolished, of jailing individuals who are unable to repay their debts.

Subsistence Farming

A type of agriculture where farmers focus on growing enough food to feed themselves and their families, with little or no surplus for trade.

Supplying Water

The process, infrastructure, and management involved in providing clean and safe water for drinking, agriculture, and other essential uses to communities.