Flo's Flowers has a proposed project with an initial cost of $$40,000$ and

cash flows of $$8,500,$$$15,600,$ and $$22,700$ for Years $1$ to $3,$ respectively.

Based on the profitability index rule, should the project be accepted if

the discount rate is $9\mathrm{.}5$ percent? Why or why not?

Multiple Choice

Yes; because the Pl is $1\mathrm{.}03$

Yes; because the PI is $95$

Yes; because the PI is negative

No; because the PI is $1\mathrm{.}03$

The payback method:

Multiple Choice

determines a cutoff point so that all projects

accepted by the NPV rule will be accepted by

the payback period rule.

determines a cutoff point equal to the point

where all initial capital investments have been

fully depreciated.

requires an arbitrary choice of a cutoff point.

varies the cutoff point with the market rate of

interest.