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%.

---

Definitions:

Technology

The application of scientific knowledge for practical purposes, especially in industry and the creation of inventions to solve problems or improve processes.

Short-Run Total Cost Function

A formula showing the total cost of production when at least one factor of production is fixed in the short run.

Average Cost

Calculated by dividing the total cost of production by the number of goods produced.

Quantity of Output

The total amount of goods or services produced by a company, industry, or country.