(Present Value Tables Are Needed

question 179

Multiple Choice

(Present value tables are needed.) Somerville Corporation is considering investing in specialized equipment costing $618,000. The equipment has a useful life of 5 years and a residual value of $55,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are: Somerville Corporation's required rate of return is 14%.
Is the internal rate of return of the investment equal to, higher than, or lower than 14%?

• A)Equal to 14%
• B)Higher than 14%
• C)Lower than 14%
• D)Cannot be determined from the given data

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Definitions:

Mere Exposure Effect

The phenomenon by which people tend to develop a preference for things merely because they are familiar with them.

Hindsight Bias

The tendency to believe, after an event has occurred, that one would have predicted or expected the outcome, also known as the "knew-it-all-along" effect.

Other-Race Effect

This phenomenon describes the tendency to more easily recognize faces of the race that one is most familiar with, which is often their own race.

Cognitive Dissonance

The mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.