A Proposed Project Has an Initial Cost of $38,000 and Cash

question 31

Multiple Choice

A proposed project has an initial cost of $38,000 and cash inflows of $12,300, $24,200, and $16,100 for Years 1 through 3, respectively. The required rate of return is 16.8 percent. Based on IRR, should this project be accepted? Why or why not?

• A) No; The IRR exceeds the required return.
• B) No; The IRR is less than the required return.
• C) Yes; The IRR exceeds the required return.
• D) Yes; The IRR equals the required return.
• E) No; The IRR equals the required return.

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Definitions:

Market Price

The current cost for engaging in transactions involving assets or services.

Zero-Coupon Bond

A type of bond that does not pay periodic interest but is issued at a discount to its face value and matures at face value.

Duration

In finance, duration measures the sensitivity of the price of a bond or other fixed-income investment to a change in interest rates, reflecting the weighted average time until payments are received.

Maturity

The state or moment when a financial instrument, such as a bond or loan, reaches its due date and principal is to be paid back.