A Firm Is Considering a Project Requiring an Investment of $30,000

question 95

Multiple Choice

A firm is considering a project requiring an investment of $30,000. The project would generate an annual cash flow of $7,251 for the next six 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)11%.
• B)9%.
• C)10%.
• D)12%.

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Definitions:

Capital Structure

The mix of debt and equity financing used by a firm to fund its operations and growth.

Industry Specific

Tailored or particularly relevant to a certain sector or type of business.

Dividend Growth Model

A valuation method used to predict the price of a company's stock by using projected dividends and discounting them back to present value.

Retained Earnings

The portion of a company's profits that is retained or re-invested in the business instead of being paid out as dividends to shareholders.