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

question 45

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:

Cash Savings

Funds that are put aside and are liquid, allowing for easy access in times of need.

Lower Labor

A reduction in the amount of labor used or required in a process or production.

Internal Rate

Often refers to the internal rate of return (IRR), which is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Operating Costs

Expenses associated with the day-to-day functioning of a business, such as rent, utilities, and payroll, excluding costs related to production.