A Project Manager Is Using the Payback Method to Make

question 38

Multiple Choice

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 15% required rate of return and expects a 5% rate of inflation for the following five years.What is the 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) 3.9 years
• B) 4.3 years
• C) 4.6 years
• D) 4.1 years

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Definitions:

Spot Price

The present market rate at which a specific asset like a commodity, currency, or security is available for purchase or sale with immediate delivery.

Sale Of Corn

typically refers to the transaction or process of selling the agricultural product corn, which can be influenced by various factors such as market demand, quality, and harvest yield.

Spot Price

The existing market value at which an asset is available for immediate purchase or sale.

Futures Contract

An agreement in law to buy or sell a designated financial product or commodity at an agreed-upon price, to be fulfilled at a future time.