Project Black Swan Requires an Initial Investment of $115,000

question 88

Multiple Choice

Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $(170,000) . The company accepts all projects with a payback period of 2 years or less.

• A) The payback rule would reject this project because of its risks are too high.
• B) The payback rule would reject this project because all negative cash flows are added together.
• C) If strictly applied, the payback rule would reject this project.
• D) If strictly applied, the payback rule would accept this project.

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service offered for sale matches the quantity being demanded, ensuing a state of balance in the market.

Inverse Demand Function

A mathematical function that expresses the price of a good or service as a function of the quantity demanded, showing how price varies with demand levels.

Tax Imposed

A financial charge or other levy placed upon an individual or a legal entity by a governmental organization in order to fund various public expenditures.

Grapefruit

A large, tart citrus fruit with a segmented interior, often eaten for breakfast or used in culinary dishes.