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

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Definitions:

Average Collection Period

The mean period it takes for an enterprise to collect payments due from its clients.

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Official records that detail a company’s financial activities and condition, including balance sheet, income statement, and cash flow statement.

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Quick Ratio

A measure of a company's ability to meet its short-term obligations with its most liquid assets.