Ted,a Project Manager,wants to Invest in a Project with an Initial

question 68

Multiple Choice

Ted,a project manager,wants to invest in a project with an initial cost of $58,500 and cash flows of $32,400 and $38,500 in Years 1 and 2.Rosita,his boss,requires a discount rate of 10 percent and also a return of $1.10 in today's dollars for every $1 invested.Will Ted get his project approved? Why or why not?

• A)Yes; because the NPV is positive
• B)Yes; because the PI is greater than 1
• C)Yes; because both criteria are met
• D)No; because the project does not meet either requirement
• E)No; while the project returns more than 10 percent it does meet $1.10 per $1 requirement.

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Definitions:

Total Assets

The total of all properties a company owns, encompassing both short-term and long-term assets.

Liquidity

The ability of an asset to be converted into cash quickly without significantly affecting its price.

Solvency

The ability of a company to meet its long-term financial commitments and continue its operations.

Profitability

The ability of a company to generate earnings as compared to its expenses and other relevant costs incurred during a specific period.