An Entrepreneur Would Like to Buy a Piece of Equipment

question 25

Multiple Choice

An entrepreneur would like to buy a piece of equipment for his business.The equipment cost $75,000 and will increase cash flow by $12,000 each year for 15 years.What is his IRR?

• A)10.92%
• B)12.25%
• C)8)00%
• D)13.65%

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Definitions:

Modified Duration

A measure of the sensitivity of the price of a bond or a bond portfolio to a change in interest rates, adjusted for the possibility that the bond may be called before maturity.

Basis Point

A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument, equivalent to 0.01%.

Interest Rates

The fee, shown as a percentage of the principal amount, that a lender imposes on a borrower for the use of assets.

T-bill Rate

The yield on U.S. Treasury bills, a benchmark for short-term interest rates in the United States.