Tressor Company Is Considering a 5-Year Project Calculate the Internal Rate of Return to Determine Whether It

question 82

Multiple Choice

Tressor Company is considering a 5-year project. The company plans to invest $90,000 now and it forecasts cash flows for each year of $27,000. The company requires that investments yield a discount rate of at least 14%. Selected factors for a present value of an annuity of $1 for five years are shown below: $$\begin{array} { c c } \text { Interest rate } & \text { Present value of ard annuity } \\ & \text { of } \$ 1 \text { factor for year } 5 \\10 \% & 3.7908 \\12 \% & 3.6048 \\14& 34331\end{array}$$ Calculate the internal rate of return to determine whether it should accept this project.

• A) The project should be accepted because it will earn more than 14%.
• B) The project should be accepted because it will earn more than 10%.
• C) The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.
• D) The project should be rejected because it will earn less than 14%.
• E) The project should be rejected because it will not earn exactly 14%.

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Definitions:

Long-Lasting Suppression

The prolonged inhibition or reduction of a response or activity.

Extinction

In behavioral psychology, the process by which a previously learned response diminishes or disappears following discontinuation of reinforcement.

Puzzle Box

An experimental device used in animal learning experiments, especially in the study of operant conditioning and problem-solving.

Negative Reinforcement

A behavioral principle involving the removal of an unpleasant stimulus to increase the likelihood of a desired response.