Simms Corp A $12.55 \%$ B $13.21 \%$ C $13.87 \%$ D $14.56 \%$

question 52

Short Answer

Simms Corp. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative, in both cases it will be rejected. $\begin{array}{c}\begin{array}{lll} \text {Year}\\\text {Cash flows}\end{array}\begin{array}{lll} 0 \\\hline -\$1,000 \end{array}\begin{array}{lll}1 \\\hline \$425\end{array}\begin{array}{lll}2 \\\hline \$425\end{array}\begin{array}{lll}3 \\\hline \$425\end{array}\end{array}$


a. $12.55 \%$
b. $13.21 \%$
c. $13.87 \%$
d. $14.56 \%$
e. $15.29 \%$

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Definitions:

Average Total Costs

The total cost of production divided by the quantity of output produced; it includes both fixed and variable costs.

Economies of Scale

Refers to the cost advantage that arises with increased output of a product, where the average cost per unit decreases as production scales up.

Diseconomies of Scale

The phenomenon where a company's production costs increase as it produces more, resulting in a decrease in efficiency.

Output Units

Quantitative measures of production, representing the number of units of goods or services produced.