Your Firm Is Considering a New Investment

question 73

Multiple Choice

Your firm is considering a new investment.The initial cost (today) is $25,000.The project generates year-end annuity cash flows of $15,000 per year for the next two years.If the hurdle rate for the project is 12% and the reinvestment rate is 9%,calculate the MIRR.Is this an acceptable project?

• A)8.00%; no,the MIRR is less than the hurdle rate
• B)10.10%; yes,the MIRR is greater than the reinvestment rate
• C)13.10%; yes,the MIRR is greater than the reinvestment rate
• D)10.10%; no,the MIRR is less than the hurdle rate

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Definitions:

Allowance for Doubtful Accounts

An accounting provision made to account for customers' invoices that may not be collectible in the future.

Partial Balance Sheet

An abbreviated balance sheet that shows a snapshot of a company’s financial position at a specific point in time, focusing on specific items.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within a year.

Notes Receivable

Financial assets representing amounts owed to the company by others, where the terms of repayment are defined in formal documents called notes.