Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return o

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Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return o

n projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively. Time 0 1 2 3 4 5 Cash Flow −100,000 30,000 45,000 55,000 30,000 10,000 Use the PI decision rule to evaluate this project; should it be accepted or rejected?

Business

1 answer:

alekssr [168] · Answer 1 · 2023-03-16T12:27:05+03:00

The profitability index decision rule of the project equals 2.45 year and thus, the project should be accept to be embarked on.

<h3>What is a profitability index?</h3>

The rule refers to a decision-making exercise that helps to evaluate whether to proceed with a project based on its profitability.

Hence, because the profitability index decision rule of the project equals 2.45 year and thus, the project should be accept to be embarked on.