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

question 42

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

• A) Discounted payback = 4.25 years; accept the project
• B) Discounted payback = 3.50 years; accept the project
• C) Discounted payback > 5 years; reject the project
• D) Discounted payback = 4.67 years; reject the project

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Definitions:

Break-Even Point

The point at which total costs match total revenue, meaning there is neither profit nor loss.

Sales Differential

Sales differential is the difference in sales volume between a company’s actual sales and a predetermined benchmark, such as past sales performance or market expectations.

Core Value

Fundamental beliefs or principles that guide an organization's actions and decision-making.

IBM

International Business Machines Corporation, a global technology company known for its computer hardware, software, and IT services.