Suppose your firm is considering investing in a project with the cash flows show

Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.
  Time 0 1 2 3 4 5 6   Cash Flow -820 150 490 690 690 290 690
Use the PI decision rule to evaluate this project; should it be accepted or rejected? 140.04%, accept 1.40%, reject -140.00%, reject 1.40%, accept Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.
  Time 0 1 2 3 4 5 6   Cash Flow -820 150 490 690 690 290 690
Use the PI decision rule to evaluate this project; should it be accepted or rejected? 140.04%, accept 1.40%, reject -140.00%, reject 1.40%, accept 140.04%, accept 1.40%, reject -140.00%, reject 1.40%, accept   Time 0 1 2 3 4 5 6   Cash Flow -820 150 490 690 690 290 690

Explanation / Answer

Using Financial Calculator

CF0=-820       (press enter)

CF1= 150       (press enter)

CF2= 490    (press enter)

CF3=   690     (press enter)

CF4=   690     (press enter)

CF5=    290    (press enter)

CF6=     690   (press enter)

Press NPV

Interest =12

Scroll down

Press CPT and NPV

NPV=1148.32

PI=1+NPV/Initial outlay

PI=1+1148.32/820

PI=1+ 1.40034

PI=140.04%(+)

Correct answer is A,accept the project since PI is more than 1

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