Project a Has a fiVe-Year Life and an Initial Cost

question 73

Multiple Choice

Project A has a five-year life and an initial cost of $1,600 and annual cash flows of $600 per year. Project B also has a five-year life and an initial cost of $2,500 with annual cash flows of $850 per
Year. Given this information, calculate the IRR cross-over rate.

• A) 12.05%
• B) 12.25%
• C) 12.45%
• D) 12.65%
• E) 12.85%

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Definitions:

Infant Industry

An industry in its early stages of development, which may be protected by the government from international competition temporarily until it becomes competitive.

Protective Tariffs

Import taxes imposed by a country on foreign goods to protect domestic industries from competition by making imported goods more expensive.

Comparative Advantage

The capacity of an entity to generate a product or service with a lesser opportunity cost compared to others.

Protectionist Argument

The rationale for implementing trade barriers, such as tariffs and quotas, to protect domestic industries from foreign competition.