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

question 51

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 10 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? $$\begin{array} { | l | l | l | l | l | l | l | l | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Cash } & - 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000 \\ \text { Flow } & & & & & & &\\\hline\end{array}$$

• A)NPV = $1,766.55; accept the project
• B)NPV = -$892.19; reject the project
• C)NPV = $1,288.94; accept the project
• D)NPV = -$3,577.90; reject the project

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Definitions:

SWOT Analysis

A framework for identifying and analyzing the Strengths, Weaknesses, Opportunities, and Threats related to business competition or project planning.

BCG Matrix

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A foundational concept in marketing, commonly referred to as the 4Ps: Product, Price, Place, and Promotion, used to consider the optimal mix of elements in marketing strategy.