Compute the PI Statistic for Project Z and Advise the Firm

question 88

Multiple Choice

Compute the PI statistic for Project Z 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 10 percent.Project Z $$\begin{array} { | r | l | l | l | l | l | l | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Cash Flow } & - \$ 1,000 & \$ 350 & \$ 380 & \$ 420 & \$ 300 & \$ 100 \\\hline\end{array}$$

• A)The project's PI is 8.48 percent and the project should be accepted.
• B)The project's PI is 8.48 percent and the project should be rejected.
• C)The project's PI is 16.48 percent and the project should be accepted.
• D)The project's PI is 21.48 percent and the project should be accepted.

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Definitions:

Plantwide Predetermined Rate

A single overhead rate calculated by dividing total estimated manufacturing overhead costs by the total estimated amount of the allocation base, applied throughout an entire plant or facility.

Machine-Hours

The total number of hours that machinery is in operation, used as a basis for allocating manufacturing overhead costs in a production environment.

Predetermined Overhead Rate

An estimated rate used to assign manufacturing overhead costs to individual units of production, based on a chosen activity base.

Direct Labor-Hours

A measure of the work input in terms of hours that can be directly attributed to the production process.