Compute the PI Statistic for Project X and Note Whether $$\begin{array} { l l l l l l l } \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash flow: } & - 75 & - 75 & 0 & 100 & 75 & 50\end{array}$$

question 97

Multiple Choice

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. $$\begin{array} { l l l l l l l } \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash flow: } & - 75 & - 75 & 0 & 100 & 75 & 50\end{array}$$

• A)10 percent, reject
• B)14.22 percent, accept
• C)13.26 percent, accept
• D)18.96 percent, accept

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Definitions:

Financial Intermediary

An institution that acts as a middleman between investors and borrowers, helping to channel funds from those with excess money to those in need of funds.

Resale Proceeds

The amount of money received from selling an asset that was previously purchased.

Price-Earnings Ratio

A valuation measure comparing the current share price of a company to its per-share earnings, used to evaluate if a stock is over or undervalued.

Retained Earnings

The portion of a company's profits that is kept or retained and not paid out as dividends to shareholders.