Bridgewater Fountains Is Considering Expanding Its Current Line of Business

question 175

Multiple Choice

Bridgewater Fountains is considering expanding its current line of business and has developed the following expected cash flows for the project. Should this project be accepted based on the
Discounting approach to the modified internal rate of return if the discount rate is 9.6 percent? Why
Or why not?

• A) Yes; The IRR is 9.11 percent.
• B) Yes; The IRR is 11.87 percent.
• C) Yes; The IRR is 11.99 percent.
• D) No; The IRR is 11.87 percent.
• E) No; The IRR is 11.99 percent.

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Definitions:

Fixed Assets

Physical assets with a useful life greater than one year, which are used in the operations of a business, such as machinery or buildings.

Net Cash Flow

The difference between the cash inflows and cash outflows in a business over a specified period.

Depreciation Expense

A non-cash expense recorded on the income statement, reflecting the gradual reduction of an asset's value over its useful life.

Net Loss

When expenses total more than revenue, the result is net loss.