An Investor Is Considering a Project That Will Generate $800

question 54

Multiple Choice

An investor is considering a project that will generate $800 000 per year for four years. In addition to up-front costs, at the completion of the project at the end of the fifth year there will be shut-down costs of $500 000. If the cost of capital is 5%, based on the MIRR, at what up-front costs does this project cease to be worthwhile?

• A)$2.84 million
• B)$2.44 million
• C)$2.32 million
• D)$2.58 million

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Definitions:

Population Mean

The average value of all the members of a population.

P-Value

The probability of observing results at least as extreme as those in a data set, given that the null hypothesis is true.

Hypothesis Testing

A statistical method used to decide whether a hypothesis about a parameter in a population is supported by the data gathered from a sample.

Test Statistic

A numerical value employed in statistical hypothesis testing for deciding if the null hypothesis should be discarded.