Suppose your firm is considering investing in Project W with the cash flows shown in the...

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Finance

Suppose your firm is considering investing in Project W with thecash flows shown in the table, that the required rate of return onprojects of this risk class is 10 percent, and that the maximumallowable payback and discounted payback statistics for the projectare 3.5 and 4.5 years, respectively. Use the PI decision toevaluate this project; should it be accepted or rejected?
A. PI = 1.04; reject the project
B. PI = 1.04; accept the project
C. PI = 0.04; reject the project
D. PI = 0.96; reject the project
E. PI = 0.96; accept the project
Project W Time Cash Flow 0 – $85,000 1 $12,000 2 $11,000 3$13,000 4 $21,000 5 $31,000 6 $32,000

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4.2 Ratings (548 Votes)

PI is Profitability index ie Present value of cash inflows divided by present value of cash out flows PI should be more than 1 in order to be financially viable Calculation of present See Answer

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Suppose your firm is considering investing in Project W with thecash flows shown in the table, that the required rate of return onprojects of this risk class is 10 percent, and that the maximumallowable payback and discounted payback statistics for the projectare 3.5 and 4.5 years, respectively. Use the PI decision toevaluate this project; should it be accepted or rejected?A. PI = 1.04; reject the projectB. PI = 1.04; accept the projectC. PI = 0.04; reject the projectD. PI = 0.96; reject the projectE. PI = 0.96; accept the projectProject W Time Cash Flow 0 – $85,000 1 $12,000 2 $11,000 3$13,000 4 $21,000 5 $31,000 6 $32,000