A proposed project has an initial cost of $200,000 and cash flows of -$13,200,$124,500,and $187,900 for Years 1 to 3,respectively.Victoria,the 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 discount rate of 14 percent to all cash flows.Based on these criteria,the project should be
A)accepted because the PI is 0.89.
B)rejected because the PI exceeds 1.
C)accepted because the PI is 1.17.
D)rejected because the PI is 1.06.
E)rejected because the PI is 0.95.

Question

Quizplus · Accepted Answer

The PI method should be used with a required value of 1.1,which is the return of $1.10 on each $1 invested. PI = (-$13,200 / 1.14 + $124,500 / 1.14² + $187,900 / 1.14³)/ $200,000 = 1.06;Reject

A Proposed Project Has an Initial Cost of $200,000 and Cash