A Project Manager Is Using the Internal Rate of Return

question 89

Multiple Choice

A project manager is using the internal rate of return method to make the final decision on which project to undertake. Which of these four projects have the highest internal rate of return?

• A) $100,000 initial outlay with $10,000 cash inflows during the first two years, $20,000 during the third and fourth years, and $30,000 during the fifth year
• B) $100,000 initial outlay with a $5,000 cash inflow during the first year, $15,000 cash inflow during the second year, and $25,000 cash inflows during years three through five
• C) $75,000 initial outlay with a $5,000 cash inflow during the first year, increasing by $5,000 per year through the fifth year
• D) $50,000 initial outlay with $5,000 cash inflows during the first two years, $15,000 during the third and fourth years, and $20,000 during the fifth year

Analyze special offers and their impact on net income.

Calculate and understand the concept of differential revenue and cost.

Evaluate investments based on opportunity costs and alternative investments.

Determine the financial impact of replacing or disposing of equipment.

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Definitions:

Economic Rents

Earnings that exceed the minimum amount necessary to keep a factor of production in its current use.

Aggregate Production

The total output of goods and services produced by an economy over a specific time period.

Reallocation

denotes the process of distributing or assigning resources, roles, or tasks differently in response to changes in conditions, preferences, or objectives.

Demand for Land

The demand for land refers to the desire, backed by purchasing power, for the use of land resources for residential, commercial, or agricultural purposes.