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

question 70

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

• A) $9,704.31, reject
• B) $84,140.71, accept
• C) $134,704.31, accept
• D) $150,868.83, accept

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Definitions:

Target Profit

The amount of profit a company aims to achieve for a specific period.

Unit Sales

The total number of individual units sold.

Net Operating Income

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

Units

A measure of quantity, referring to the individual countable items or grouped quantities of a product.