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:

Implied Term

A condition or element not expressly mentioned in a contract but assumed to be included by virtue of the nature of the agreement or the circumstances under which it was made.

Second-Hand Dealer

A business or individual that buys and sells used goods.

Security Interest

A legal claim or lien on collateral that has been pledged, usually to secure repayment of a debt.

Clear Title

Ownership that is free of liens, disputes, or legal questions, fully enabling the transfer to another party.