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

question 39

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 three and a half years,respectively.Use the payback decision to evaluate this project; should it be accepted or rejected?

• A)Payback = 4.90 years; reject
• B)Payback = 4.40 years; reject
• C)Payback = 5.80 years; reject
• D)Payback > 6.00 years; reject

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Definitions:

Horizontal

Oriented parallel to the ground or to the bottom and top edges of something, as opposed to vertical.

Vertical

Oriented upward, perpendicular to the horizon or a horizontal plane.

Rotary

Refers to something revolving around a center or axis, such as a rotary engine or a rotary dial.

Ear Ossicles

The three small bones in the middle ear known as the malleus, incus, and stapes, which transmit sound vibrations from the eardrum to the inner ear.