Suppose Your Firm Is Considering Investing in a Project with the Cash

question 17

Multiple Choice

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 8 percent,and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years,respectively.Use the IRR decision to evaluate this project; should it be accepted or rejected?

• A)IRR = 16.92 percent; accept the project
• B)IRR = 7.123 percent; reject the project
• C)IRR = 18.32 percent; accept the project
• D)IRR = 7.59 percent; reject the project

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Definitions:

Volatile Demand

Demand for a product or service that experiences frequent, unpredictable changes often leading to challenges in inventory management and production planning.

Stable Demand

Describes a market condition where the demand for a particular product or service remains consistent over time.

Static Budget

A budget that does not change or adapt with variations in sales volume or business activity levels, typically set for a specific period.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity.