You Are Analyzing a Project and Have Gathered the Following

question 78

Multiple Choice

You are analyzing a project and have gathered the following data: $$\begin{array} { l r l } \frac { \text { Year } } { 0 } & \frac { \text { Cash flow } } { } & \\1 & - \$ 175,000 & \\2 & \$ 56,400 & \\3 & \$ 61,800 & \\4 & \$ 72,000 & \\\text { Required payback period } & 2.5 \text { years } \\\text { Required AAR } & 11.5 \text { percent } \\\text { Required return } & 14.5 \text { percent }\end{array}$$ Based on the internal rate of return of _____ percent for this project,you should _____ the project.

• A)14.67; accept
• B)17.91; accept
• C)14.67; reject
• D)17.91; reject
• E)18.46; reject

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Definitions:

Average Total Cost

The total cost of production divided by the number of units produced, representing the cost per unit.

Marginal Cost

The cost added by producing one extra item of a product, integral for decision-making in production.

Cookies

Small, sweet baked treats, often containing flour, sugar, and some type of oil or fat, sometimes including other ingredients such as chocolate chips or nuts.

Average Total Cost

The total cost per unit of output, calculated by dividing the total cost of production by the quantity of output.