Compute the PI Statistic for Project Q and Advise the Firm

question 84

Multiple Choice

Compute the PI statistic for Project Q and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent.Project Q $$\begin{array} { | r | l | l | l | l | l | l | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - \$ 1,000 & \$ 250 & \$ 180 & \$ 420 & \$ 300 & \$ 100 \\\hline\end{array}$$

• A)The project's PI is -8.70 percent and the project should be rejected.
• B)The project's PI is -11.70 percent and the project should be rejected.
• C)The project's PI is 3.70 percent and the project should be accepted.
• D)The project's PI is 5.70 percent and the project should be accepted.

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Definitions:

Desired Outcome

The intended result or goal that an individual, organization, or policy aims to achieve.

Actual Outcome

The real result or end-product of a process, as opposed to the expected or theoretical outcome.

Calories

A measure of energy in food, scientifically defined as the amount of energy needed to raise the temperature of 1 kilogram of water by 1 degree Celsius.

Marginal Utility

refers to the additional satisfaction or utility gained from consuming one more unit of a good or service.