An Investment That Costs $82,000 Is Expected to Reduce Cash

question 46

Multiple Choice

An investment that costs $82,000 is expected to reduce cash operating costs by $27,000 per year for 4 years.Based on the internal rate of return of the investment, should the investment be undertaken if the required rate of return is 9 percent?

• A)No, the actual return of 3.04% is less than the required rate of return
• B)Yes, because the return of 12% is more than the hurdle rate
• C)Yes, because the IRR is more than 30%
• D)Yes, because the NPV exceeds the cost by $26,000

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Definitions:

Corrective Taxes

Taxes designed to influence market outcomes by correcting for the effects of externalities, encouraging or discouraging certain behaviors.

Regulations

Rules or directives made and maintained by an authority to regulate behavior, often in professional settings, industries, or governmental areas.

Optimal Level

The most efficient, effective, or desirable point or degree for a specific outcome.

Pollution

The contamination of natural environments by harmful substances or activities.