Compute the IRR for Project X and Note Whether the Firm

question 38

Multiple Choice

Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent. $$\begin{array} { l l l l l l l } \text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\\text { Cash flow: } & - 1000 & - 75 & 100 & 100 & 0 & 2000\end{array}$$

• A)9 percent, accept
• B)9 percent, reject
• C)16.61 percent, accept
• D)16.61 percent, reject

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Definitions:

Callable Bond

A type of bond that gives the issuer the right to repay the bond before its maturity date at a predetermined price.

Buy Back

The process by which a company repurchases its own shares from the marketplace, reducing the amount of outstanding stock.

Maturity

The time at which a financial instrument (such as a bond, loan, or investment) becomes due for payment or expires.

Protective Covenants

Clauses in a loan agreement that limit certain actions of the borrower to protect the lender, ensuring the borrower's ability to repay the debt.