A Firm Is Evaluating Two Independent Projects Utilizing the Internal

question 47

Multiple Choice

A firm is evaluating two independent projects utilizing the internal rate of return technique. ProjectX has an initial investment of $80,000 and cash inflows at the end of each of the next five years of$25,000. Project Z has an initial investment of $120,000 and cash inflows at the end of each of the next four years of $40,000. The firm should

• A) accept both if their cost of capital is 15% at the maximum.
• B) reject both if their cost of capital is 12% at the maximum.
• C) accept only Z if their cost of capital is 15% at the maximum.
• D) accept only X if their cost of capital is 15% at the maximum.

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Definitions:

Sample Size

Sample size refers to the number of observations or participants included in a statistical sample.

Critical Value

A threshold value that separates probable values from improbable values for a test statistic, under a specified significance level.

Region of Non-rejection

An area in hypothesis testing where the data does not provide sufficient evidence to reject the null hypothesis.

Statistic

A quantitative measure derived from a sample of data used to summarize or describe aspects of that data.