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:

Indirect Materials

Materials used in the production process that do not become an integral part of the final product and are not easily traceable to specific products.

Raw Materials

Basic substances or inputs in their natural, unprocessed, or minimally processed states used in manufacturing to produce finished goods.

Work in Process

Inventory that includes goods that are in the production process but are not yet completed.

Raw Materials

The basic substances in their natural, modified, or semi-processed state used as inputs for manufacturing.