Should the Following Project Be Accepted If the Cost of Capital

question 70

Multiple Choice

Should the following project be accepted if the cost of capital is 12%?
Initial Investment is $50,000
$$\begin{array} { | c | c | } \hline \text { Years } & \text { Cash Flars } \\\hline 1 & \$ 25,000 \\\hline 2 & \$ 35,000 \\\hline 3 & \$ 55,000 \\\hline\end{array}$$

• A)Yes, because the internal rate of return is 10.5% which is less than 12%.
• B)Yes, because the internal rate of return is 35% which is more than 12%.
• C)No, because the internal rate of return is 8.7% which is less than 12%.
• D)Yes, because the internal rate of return is 48% which is more than 12%.

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Definitions:

Indefinite Life

An intangible asset that has no foreseeable limit on the period over which it is expected to generate economic benefits.

Not Amortised

Pertaining to certain assets or costs that are not gradually written off through amortization over their useful life, possibly because they have an indefinite life or a value that cannot be reliably measured over time.

Fair Values

An estimation of the market value of an asset or liability, based on current prices in an active market or through model-based techniques when no active market exists.

Journal Entry

A record of a business transaction in an accounting system that includes the accounts and amounts to be debited and credited.