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

question 18

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 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the NPV decision to evaluate this project; should it be accepted or rejected? $$\begin{array} { | l | l | l | l | l | l | l | l | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Cash } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000 \\\text { Flow } & & & & & & & \\\hline\end{array}$$

• A)NPV = $1,766.55; accept the project
• B)NPV = $892.19; accept the project
• C)NPV = $1,288.94; accept the project
• D)NPV = -$104.73; reject the project

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Definitions:

Income

The financial return received by an individual or entity in exchange for providing goods, services, or through investing capital, including wages, profits, and rents.

Upper Quintiles

Refers to the top 20% of the population in terms of income distribution, often used in studies of social, economic, and wealth stratification.

Income

The income earned, particularly in consistent intervals, from employment or investment returns.

Upper Quintile

Refers to the top 20 percent of the population or distribution in terms of income, wealth, or another statistical measure.