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:

Equity Investment

involves purchasing shares of a company, thus obtaining ownership interest in that company.

Management Team

A group of individuals at the top level of an organization who are responsible for its overall direction and strategy.

Investors

Individuals or institutions that allocate capital with the expectation of receiving financial returns, typically through investments in securities, real estate, or other assets.

Going Public

The process by which a privately held company offers shares to the public in a new stock issuance, making it a publicly traded and owned entity.