A Firm Considers a Project with the Following Cash Flows

question 39

Multiple Choice

A firm considers a project with the following cash flows: time-zero = +20,000, years 1-5 = -4,500.Should the project be accepted if the cost of capital is 10 percent?

• A)Yes, the IRR of the project is 4.06 percent.
• B)Yes, the IRR of the project is 12.5 percent.
• C)No, the IRR of the project is 4.06 percent.
• D)No, the IRR of the project is 12.5 percent.

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Definitions:

Variable Costing

An approach in accounting where only direct materials, direct labor, and variable manufacturing overhead costs are considered in calculating the cost of products.

Net Operating Income

The total profit of a company after operating expenses are deducted, but before interests and taxes are subtracted.

Fixed Cost

Costs that do not change with the level of production or sales activity, such as rent or salaries.

Segment Margin

The amount of profit or loss produced by a particular segment of a business, considering only the revenues and expenses directly attributable to that segment.