A Company Is Evaluating 3 Possible Investments -
What Is the Rate of Return for Project A

question 53

Multiple Choice

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$


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What is the rate of return for Project A?

• A) 50%
• B) 4%
• C) 16%
• D) 10%

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Definitions:

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than its trading partners.

World Price

The global market price of a commodity, determined by international supply and demand.

Domestic Price

The price of goods or services within a country's borders, which can be influenced by local supply and demand factors.

Domestic Supply

The total amount of goods and services produced within a country's borders that are available for consumption or export.