A Proposed Project Has an Initial Cost of $475,000 and Cash

question 41

Multiple Choice

A proposed project has an initial cost of $475,000 and cash flows of -$21,200,$367,500,and $287,000 for Years 1 to 3,respectively.Victoria,the boss,insists that only projects that can return at least $1.10 in today's dollars for every $1 invested can be accepted.She also insists on applying a discount rate of 12 percent to all cash flows.Based on these criteria,the project should be:

• A)accepted the NPV is positive.
• B)accepted because the PI exceeds 1.
• C)accepted because IRR is less than 12 percent.
• D)rejected because the PI is 1.01.
• E)rejected because the IRR exceeds 12 percent.

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Definitions:

Logical Gap

A flaw or disconnect in an argument where the conclusion does not logically follow from the premises.

Implicit Premise

An underlying assumption that is not explicitly stated but is necessary for an argument's conclusion to be valid.

Implicit Premises

Unstated assumptions that are necessary for an argument to hold together logically, but are not explicitly mentioned.

Explicit Information

Details or facts that are clearly and directly expressed or stated, without the need for inference.