An Investment Cost $10,000 with Expected Cash Flows of $3,000

question 22

Multiple Choice

An investment cost $10,000 with expected cash flows of $3,000 a year for 5 years.At what discount rate will the project's IRR equal its discount rate?

• A)15.24 percent
• B)27.22 percent
• C)0 percent
• D)16.67 percent
• E)21.08 percent

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Definitions:

Competitive Markets

Competitive markets are characterized by many buyers and sellers, allowing for free and open competition which dictates prices and quality of goods and services.

Economies Of Scale

The property whereby long-run average total cost falls as the quantity of output increases.

Competition

The rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion.

Business-stealing Externality

A situation where a new entrant in a market captures a portion of the incumbent firms' customers, causing economic losses to existing businesses.