Answered: Compute the PI statistic for Project Z…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flow shown as follows if the appropriate cost of capital is 10 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project Z
Time:	0	1	2	3	4	5
Cash flow:	–$1,000	$350	$380	$420	$300	$100

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Here are the four answer options provided for this question:

(a) The project's PI is 21.48 percent and the project should be accepted.

(b) The project's PI is 16.48 percent and the project should be accepted.

(d) The project's PI is 8.48 percent and the project should be rejected.

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