You Are Offered a Chance to Buy an Asset for $7,250

question 108

Multiple Choice

You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?

• A) 4.93%
• B) 5.19%
• C) 5.46%
• D) 5.75%
• E) 6.05%

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Definitions:

Total Assets

The sum of all current and non-current assets that a company owns, used in evaluating the company's financial strength.

Cash Flow

The total amount of money being transferred into and out of a business, affecting the company's liquidity.

Investment Activities

Financial actions related to the acquisition and disposal of long-term assets and other investments not considered cash equivalents.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency of the company.