The Mayor of Trenton Is Considering the Purchase of a New

question 100

Multiple Choice

The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $75,000 and has an expected life of five years. The mayor estimates the following savings will result if the system is purchased:

What can be said about the computer system's internal rate of return if the net present value at 12% is positive? Trenton uses a 10% discount rate for capital-budgeting decisions.

• A) The internal rate of return is greater than 12%.
• B) The internal rate of return is between 10% and 12%.
• C) The internal rate of return is less than 10%.
• D) The internal rate of return must be less than 5%.
• E) There is insufficient information to make any judgment about the internal rate of return.

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