A Project Manager Is Using the Payback Method to Make

question 22

Multiple Choice

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following four years.What is the non-discounted payback of a project that has cash flows as shown in the table? $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 250,000 \\\hline 1 & \$ 50,000 \\\hline 2 & \$ 60,000 \\\hline 3 & \$ 70,000 \\\hline 4 & \$ 80,000 \\\hline\end{array}$$

• A) 3.875 years
• B) 3.625 years
• C) 3.750 years
• D) 3.500 years

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Definitions:

Capital

Financial assets or resources that businesses or individuals use to generate wealth through investment, production, or development.

Labor

The physical and mental effort used in the production of goods and services, often considered one of the primary factors of production.

Marginal Physical Product

The extra yield obtained by employing an additional unit of a variable factor, while keeping all other factors unchanged.

Total Revenue Product

The total revenue generated from the sale of goods or services produced from a specific input or resource.