Miller Brothers Is Considering a Project That Will Produce Cash

question 43

Multiple Choice

Miller Brothers is considering a project that will produce cash inflows of $32,500, $38,470, $40,805, and $41,268 a year for the next four years, respectively.What is the internal rate of return if the initial cost of the project is $184,600?

• A)7.39 percent
• B)6.86 percent
• C)6.47 percent
• D)7.62 percent
• E)6.24 percent

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Definitions:

Induced Consumption

The portion of consumer spending that increases with an increase in disposable income, implying that as people earn more, they tend to spend more.

APC

In economics, it stands for Average Propensity to Consume, indicating the fraction of income that is spent.

Disposable Income

Resources households have at their disposal for saving and expenditure once income taxes have been accounted for.

Marginal Propensity

Typically refers to the marginal propensity to consume (MPC), which is the proportion of an additional income that a consumer spends on goods and services as opposed to saving it.