A Machine Costs $25,000;it Is Expected to Generate Annual Cash

question 53

Multiple Choice

A machine costs $25,000;it is expected to generate annual cash revenues of $8,000 and annual cash expenses of $2,000 for five years.The required rate of return is 12%.Which of the following statements about the machine's internal rate of return is true?

• A)The internal rate of return is greater than 12%.
• B)The internal rate of return is between 10% and 12%.
• C)The internal rate of return is less than 10%.
• D)The internal rate of return must be greater than 15%.
• E)There is insufficient information to make any judgment about the internal rate of return.

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Definitions:

Income Summary

An account in the ledger that aggregates all income and expense accounts to determine the net income or loss for a period.

Prepaid Rent

This is the amount paid for rent in advance of the rental period to which it relates, recorded as an asset on the balance sheet until the period to which it applies.

Loss on Sale of Land

The financial loss recognized when land is sold for less than its purchase price or carrying value on the books.

Sales Journal

A financial journal used to record the sales of goods or services on credit.