Dice, Inc Is Considering a Very Risky Five-Year Project That Has

question 18

Multiple Choice

Dice, Inc. is considering a very risky five-year project that has an initial outlay or cost of $70,000. The future cash inflows from its project for years 1, 2, 3, 4, and 5 are all the same at $35,000. Dice uses the internal rate of return method to evaluate projects. Will Dice accept the project if its hurdle rate is 41.00%?

• A) Dice will probably reject this project because its IRR is about 39.74%, which is slightly below its hurdle rate.
• B) Dice will probably accept this project because its IRR is about 41.04%, which is slightly above its hurdle rate.
• C) Dice will accept this project because its IRR is about 41.50%.
• D) Dice will accept this project because its IRR is over 45.50%.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, typically from profits or reserves.

Net Profit Margin

A financial metric that measures how much of every dollar of revenues is translated into profits, after all expenses are deducted.

Earnings Per Share

A measure of a company's profitability, calculated as net income divided by the number of outstanding shares.

Income Statement

A financial statement that shows a company's revenues, expenses, and profits over a specific period, highlighting operating performance.