Assume That an Industrial Building Can Be Purchased for $1,500,000

question 26

Multiple Choice

Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year) , and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) for this transaction.

• A) 3.14%
• B) 6.78%
• C) 9.20%
• D) 10.37%

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Definitions:

Deferred Revenue

Money received for goods or services which have not yet been delivered or rendered, considered a liability until the service or good is provided.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditure to the appropriate period.

Deferred Revenue

Money received by a company for goods or services yet to be delivered or performed, recognized as a liability until the service or product is delivered.

Adjusting Entry

An accounting entry made to update the financial records before financial statements are prepared, ensuring they follow the accrual basis of accounting.