A Firm Is Evaluating Two Independent Projects Utilizing the Internal

question 139

Multiple Choice

A firm is evaluating two independent projects utilizing the internal rate of return technique. Project X has an initial investment of $80,000 and cash inflows at the end of each of the next five years of $25,000. Project Z has an initial investment of $120,000 and cash inflows at the end of each of the next four years of $40,000. The firm should ________.

• A) accept both the projects because they have equal IRR
• B) accept Project Y because its IRR is higher than Project Z
• C) accept Project Z because its IRR is higher than Project X
• D) reject both the projects because they have negative IRR

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Definitions:

Liability Account

A financial accounting term for amounts owed by a business to creditors or others, usually categorized as current or long-term.

Asset Account

An account that records the value of resources owned by an entity which have economic value and can provide future benefits.

Capital

Financial resources or assets owned by a business or individual used for creating wealth or generating income.

Net Sales

The final sales figure a company reports, after deducting returns, discounts, and compensations for damaged or missing products from its total sales.