Homer Is Considering a Project with Cash Inflows of $950

question 73

Multiple Choice

Homer is considering a project with cash inflows of $950 a year for Years 1 to 4,respectively.The project has a required discount rate of 11 percent and an initial cost of $2,100.What is the discounted payback period?

• A)3.05 years
• B)2.68 years
• C)3.39 years
• D)2.21 years
• E)Never

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Definitions:

Formulation

The process of creating a strategy, plan, or method for dealing with a specific issue or for achieving a specified goal.

Return

The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost.

Zero Coupon

A type of bond that does not pay periodic interest payments but instead is sold at a deep discount from its face value and pays its full face value at maturity.

Imputed Interest

The assumed interest rate used by the IRS for tax purposes on loans with little or no interest, to ensure that tax is collected on essentially interest-free loans.