A proposed project has an initial cost of $475,000 and cash flows of -$21,200,$367,500,and $287,000 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 12 percent to all cash flows.Based on these criteria,the project should be:
A)accepted the NPV is positive.
B)accepted because the PI exceeds 1.
C)accepted because IRR is less than 12 percent.
D)rejected because the PI is 1.01.
E)rejected because the IRR exceeds 12 percent.

Question

Quizplus · Accepted Answer

The PI method should be used with a required value of 1.1.PI = (-$21,200/1.12 + $367,500/1.12² + $287,000/1.12³)/$475,000 = 1.01;Reject

A Proposed Project Has an Initial Cost of $475,000 and Cash