A Firm Is Considering a Project Requiring an Investment of $200,000

question 48

Multiple Choice

A firm is considering a project requiring an investment of $200,000. The project would generate an annual cash flow of $55,478 for the next five years. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. The approximate internal rate of return for the project is

• A)9%.
• B)10%.
• C)12%.
• D)16%.

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Definitions:

Liquidity

Refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

Price-earnings Ratio

The Price-earnings Ratio is a measure of a company's current share price relative to its per-share earnings, used to evaluate its valuation.

Market Price Per Share

The current value at which an individual share of a company can be bought or sold in the market.

Contra Asset Accounts

Accounts on a balance sheet that have a credit balance and are used to offset the debit balances in related asset accounts, such as accumulated depreciation.