Riker Cois Considering Which of 4 Different Projects to Undertake in in Order

question 16

Multiple Choice

Riker Co.is considering which of 4 different projects to undertake in order to maximize its net present value (NPV) .Define Xi as a binary variable that equals 1 if project i is undertaken and 0 otherwise,for i = 1,2,3,4.The NPV and required capital (in millions) for each project are listed below.
What is the proper objective function?

• A)Max X1 + X2 + X3 + X4
• B)Min 60X1 + 50X2 + 40X3 + 20X4
• C)Max 60X1 + 50X2 + 40X3 + 20X4
• D)Max 7X1 + 10X2 + 6X3 + 3X4
• E)Max 170(X1 + X2 + X3 + X4)

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Definitions:

Cash Payback Period

The length of time it takes for an investment to generate enough cash flow to recover the initial investment cost.

Net Cash Flow

The difference between a company's cash inflows and outflows within a specified period, representing the overall change in its cash position.

Average Rate of Return

A financial ratio that compares the average annual profit of an investment to its initial cost, often used to assess the profitability of an investment over time.

Present Value Factors

Multipliers used to calculate the present value of a future amount of money or stream of cash flows given a specific discount rate.