Suppose Your Firm Is Considering Investing in a Project with the Cash

question 32

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the MIRR decision to evaluate this project; should it be accepted or rejected? $$\begin{array} { | l | l | l | l | l | l | l | l | } \hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Cash } & - 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000 \\\text { Flow } & & & & & & & \\\hline\end{array}$$

• A)MIRR = 11.59 percent; accept the project
• B)MIRR = 9.21 percent; reject the project
• C)MIRR = 7.19 percent; reject the project
• D)MIRR = 10.58 percent; accept the project

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Definitions:

Monopolistic Competition

A market structure characterized by many firms selling similar but not identical products, with each having some control over its own prices.

Price Makers

Entities in a market that have the power to set prices for goods or services because they hold significant control over the market or the product.

Oligopoly

A market structure in which a small number of firms dominate the market, leading to limited competition and possibly higher prices for consumers.

Market Power

The ability of a firm or group of firms to influence or control prices and total market output.