Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the PI decision to evaluate this project; should it be accepted or rejected?
A) PI = 6.94 percent; reject the project
B) PI = 7.52 percent; reject the project
C) PI = 23.61 percent; accept the project
D) PI = 35.33 percent; accept the project

Question

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the PI decision to evaluate this project; should it be accepted or rejected? 
A) PI = 6.94 percent; reject the project 
B) PI = 7.52 percent; reject the project 
C) PI = 23.61 percent; accept the project 
D) PI = 35.33 percent; accept the project

Quizplus · Accepted Answer

Step 1: Find NPV using a financial calculator: NPV = 1,766.55;
Step 2: PI = 1,766.55/5,000 = 35.33 percent and accept since PI > 0.

Suppose Your Firm Is Considering Investing in a Project with the Cash