Please Review the Information on 4 Potential Investments -
Based on the Above Data, Which Project Carries the |

question 23

Multiple Choice

Please review the information on 4 potential investments:
$$\begin{array} { | r | r | r | r | r | } \hline & \text { Praject A } & { \text { Praject B } } & { \text { Praject C } } & { \text { Praject D } } \\\hline \text { Initial investment } & \$ 200,000 & \$ 250,000 & \$ 300,000 & \$ 90,000 \\\hline \text { PV of cash inflows } & \$ 285,000 & \$ 295,000 & \$ 420,000 & \$ 94,000 \\\hline \text { Payback period (years) } & 7.2 & 6.0 & 9.5 & 2.0 \\\hline \text { NPV of project } & \$ 85,000 & \$ 45,000 & \$ 120,000 & \$ 4,000 \\\hline \text { Profitability index } & 1.43 & 1.10 & 1.40 & 1.04 \\\hline\end{array}$$
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Based on the above data, which project carries the lowest level of risk?

• A) Project A
• B) Project B
• C) Project C
• D) Project D

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Definitions:

Sales Discounts

Price reductions offered by sellers to encourage prompt payment by buyers.

Credit Sales

Sales made by a business where payment is allowed to be deferred until a later date.

Perpetual Inventory System

An inventory management method where updates are made continuously to record sales and purchases instantly.

Merchandise Inventory Account

An account on the balance sheet that represents the cost of goods available for sale, including items purchased for resale.