Osterwitz Company Is Evaluating an Investment of $1,000,000 Which Will

question 144

True/False

Osterwitz Company is evaluating an investment of $1,000,000 which will yield cash flows of $142,400 per year for 10 years with no residual value.
$\begin{array}{|r|l|l|l|l|l|l|}\hline\text {Present Value of }\\\text {an Annuity of }\\\$ 1\\ \hline &5\%&6\%&7\%&8\%&9\%&10\%\\\hline1 & 0.952 & 0.943 & 0.939 & 0.92 & 0.917 & 0.909 \\\hline 2& 1.859 & 1.833 & 1.809 & 1.78 & 1.759 & 1.736 \\\hline 3 & 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.546 & 3.465 & 3.387 & 3.31 & 3.240 & 3.170 \\\hline 5 & 4.329 & 4.212 & 4.10 & 3.99 & 3.890 & 3.791 \\\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 & 4.486 & 4.355\\\hline 7& 5.780 & 5.582 & 5.389 & 5.206& 5.033 &4.355 \\\hline 8& 6.463 & 6.210 & 5.971 & 5.747 & 5.535 &5.335 \\\hline9& 7.108 & 6.802 & 6.513 & 6.247 & 5.995 &5.759 \\\hline 10&7.722 & 7.360 & 7.024 & 6.710 & 6.418 &6.145 \\\hline\end{array}$


If Osterwitz has a hurdle rate of 6%, they should accept the investment because it has an internal rate of return greater than 6%.

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