You would like to invest in the following project.
Camille,your 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 10% discount rate to all cash flows.Based on these criteria,you should:
A)accept the project because it returns almost $1.22 for every $1 invested.
B)accept the project because it has a positive PI.
C)accept the project because the NPV is $2,851.
D)reject the project because the PI is 1.05.
E)reject the project because the IRR exceeds 10%.

Question

You would like to invest in the following project. 
Camille,your 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 10% discount rate to all cash flows.Based on these criteria,you should:
A)accept the project because it returns almost $1.22 for every $1 invested. 
B)accept the project because it has a positive PI. 
C)accept the project because the NPV is $2,851. 
D)reject the project because the PI is 1.05. 
E)reject the project because the IRR exceeds 10%.

Quizplus · Accepted Answer

You should reject the project since the PI of 1.05 is less than Victoria's requirement of 1.10.It is worth mentioning that the NPV of this project is $2,851.24 and the IRR is 13.71%,both of which would normally indicate project acceptance.However,neither the NPV nor the IRR meet the requirement of returning $1.10 for every $1 spent.

You Would Like to Invest in the Following Project