Two Fellow Financial Analysts Are Evaluating a Project with the Following

question 38

Multiple Choice

Two fellow financial analysts are evaluating a project with the following net cash flows: Year
Cash Flow
0
−$10,000
1
100,000
2
−100,000
One analyst says that the project has an IRR of between 12 and 13%.The other analyst calculates an IRR of just under 800%,but fears his calculator's battery is low and may have caused an error.You agree to settle the dispute by analyzing the project cash flows.Which statement best describes the IRR for this project?

• A) There is a single IRR of approximately 12.7 percent.
• B) This project has no IRR,because the NPV profile does not cross the X axis.
• C) There are multiple IRRs of approximately 12.7 percent and 787 percent.
• D) This project has two imaginary IRRs.
• E) There are an infinite number of IRRs between 12.5 percent and 790 percent that can define the IRR for this project.

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Definitions:

Sum of Squares for Blocks

In experimental design, the sum of squares for blocks quantifies the variance in the response variable that can be attributed to differences across blocks or groups.

Cleavage Furrow

The indentation that appears in a cell's surface when it is about to divide, leading to cytokinesis in animal cells.

Cytokinesis

The process during cell division in which the cytoplasm of a parent cell is divided into two daughter cells, following the separation of the cell nucleus during mitosis or meiosis.

Mitosis

A form of cellular division leading to the creation of two offspring cells, each possessing an identical number and type of chromosomes to that of the original nucleus, commonly seen in regular tissue development.