A Project Manager Is Using the Payback Method to Make

question 41

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 five years.What is the non-discounted payback of a project that has cash flows as shown in the table? $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 500,000 \\\hline 1 & \$ 50,000 \\\hline 2 & \$ 75,000 \\\hline 3 & \$ 150,000 \\\hline 4 & \$ 150,000 \\\hline 5 & \$ 750,000 \\\hline\end{array}$$

• A) 3.7 years
• B) 4.1 years
• C) 5.0 years
• D) 4.8 years

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Definitions:

Economic Factors

Elements outside the business that affect its performance, including inflation, unemployment, economic growth, and exchange rates.

Foreign Currency Fluctuations

Variations in the value of one currency compared to another, which can impact international trade and investments.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Income Distribution

The way in which a nation’s total income is spread among its population.