A Company Is Considering a 5-Year Project

question 6

Multiple Choice

A company is considering a 5-year project.The company plans to invest $60,000 now and it forecasts cash flows for each year of $16,200.The company requires a hurdle rate of 12%.Calculate the internal rate of return to determine whether it should accept this project.Selected factors for a present value of an annuity of 1 for five years are shown below:

• A)The project should be accepted.
• B)The project should be rejected because it earns less than 10%.
• C)The project earns more than 10% but less than 12%.At a hurdle rate of 12%,the project should be rejected.
• D)Only 9% is acceptable.
• E)Only 10% is acceptablE.Investment/Annual net cash flows = $60,000/$16,200 = 3.704