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

question 53

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 statistics for the project are three and a half and four and a half years,respectively.Use the NPV decision to evaluate this project; should it be accepted or rejected?

• A) NPV = $1,766.55; accept the project
• B) NPV = $892.19; accept the project
• C) NPV = $1,288.94; accept the project
• D) NPV = −$104.73; reject the project

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Definitions:

Net Income

A company's overall earnings following the deduction of all expenses and taxes from its income.

Sunk Costs

Expenses that have already been incurred and cannot be recovered or altered, and should not affect future business decisions.

Project Analysis

Project analysis involves assessing the viability, impact, and feasibility of a project before financial resources are allocated.

Erosion

The gradual loss or decline of an economic or business value over time.