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

question 33

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 8 percent,and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years,respectively. Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

• A) 1.23 years, accept
• B) 2.45 years, accept
• C) 2.77 years, accept
• D) 5.36 years, reject

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Definitions:

Sales

The revenue generated from the selling of goods or services by a company or an enterprise to its customers.

Turnover

Sales divided by average operating assets.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment, expressed as a percentage.

Net Operating Income

The total profit of a company after operating expenses are subtracted from gross profit but before income taxes and interest expenses are deducted.