Matthew's Construction Is Considering a Project That Will Cost $1

question 185

Multiple Choice

Matthew's Construction is considering a project that will cost $1.2 million to start. The project is expected to produce cash flows starting in year 2 of $269,000 a year for the following six years. What is the internal rate of return on this project?

• A) 4.09%
• B) 5.62%
• C) 6.97%
• D) 8.32%
• E) 9.19%

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Definitions:

Net Profit Margin

The percentage of revenue remaining after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company's total revenue.

Return on Assets

A measure of a company's profitability relative to its total assets, indicating how efficiently a company uses its assets to generate earnings.

Cost of Borrowing

The total charges, including interest and any other fees, that a borrower pays to secure and use borrowed money.

Acid-Test Ratio

A financial metric that measures a company's ability to meet its short-term obligations with its most liquid assets.