Should the Following Project Be Accepted If the Cost of Capital

question 56

Multiple Choice

Should the following project be accepted if the cost of capital is 12%? Initial Investment is $50,000.
? $$\begin{array} { | l | l | } \hline \text { Years } & \text { Cash Flows } \\\hline 1 & \$ 25,000 \\\hline 2 & \$ 35,000 \\\hline 3 & \$ 55,000 \\\hline\end{array}$$

• A) Yes, because the internal rate of return is 10.5%, which is less than 12%.
• B) Yes, because the internal rate of return is 35%, which is more than 12%.
• C) No, because the internal rate of return is 8.7%, which is less than 12%.
• D) Yes, because the internal rate of return is 48%, which is more than 12%.

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Definitions:

Compounded Monthly

Interest calculation method where interest is added to the principal each month, increasing the amount on which subsequent interest is calculated.

RRSP

A Registered Retirement Savings Plan that allows individuals in Canada to save for retirement on a tax-deferred basis.

Annuity Payment

A fixed amount of money paid to someone each period, typically for the rest of their life or for a fixed number of years, as part of an annuity contract.

Ordinary Annuity

A series of equal payments made at regular intervals, with the interest compounding period being the same as the payment period.