You Are Considering an Investment with the Following Cash Flows

question 98

Multiple Choice

You are considering an investment with the following cash flows.If the required rate of return for this investment is 15.5 percent,should you accept the investment based solely on the internal rate of return rule? Why or why not?

• A)Yes; The IRR exceeds the required return.
• B)Yes; The IRR is less than the required return.
• C)No; The IRR is less than the required return.
• D)No; The IRR exceeds the required return.
• E)You cannot apply the IRR rule in this case.

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Definitions:

Parent-subsidiary Relationship

A corporate structure where one company (the parent) controls another company (the subsidiary) typically through ownership of a majority of its shares.

Partnership

A formal business enterprise where multiple individuals collaborate in management and profit distribution.

Cost Method

An accounting method where investments are recorded at their original purchase cost, without adjustment for increases or decreases in market value.

Liquidated

Liquidated refers to the process of converting assets into cash, often associated with dissolving a company or selling off its assets to pay off debts.