Suppose Your Firm Is Considering Investing in a Project with the Cash

question 57

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the MIRR decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c } \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Cash Flow } & - \$ 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000\end{array}$$

• A) MIRR = 11.59 percent, accept the project
• B) MIRR = 9.21 percent, reject the project
• C) MIRR = 7.19 percent, reject the project
• D) MIRR = 10.58 percent, accept the project

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Definitions:

Population Proportions

The fraction or percentage of a population that exhibits a specific characteristic or attribute.

Standard Error

The standard deviation of the sampling distribution of a statistic, providing a measure of the precision of the estimated population parameter.

Interval Estimate

An estimate of a population parameter that specifies a range of possible values within which the parameter is expected to lie, often expressed with a level of confidence.

Mean Ages

The average age of individuals in a population or sample, calculated by summing their ages and dividing by the number of individuals.