Epiphany Industries Is Considering a New Capital Budgeting Project That

question 60

Multiple Choice

Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects: The free cash flow for the last year of Epiphany's project is closest to ________.

• A) $65,750
• B) $59,175
• C) $49,313
• D) $52,600

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Definitions:

IRR Method

The Internal Rate of Return (IRR) method is a financial analysis tool used to evaluate the profitability of investments by finding the interest rate at which the net present value of all cash flows (both positive and negative) from a particular project equals zero.

Hurdle Rate

The minimum rate of return on an investment that a manager or company requires before pursuing a project or investment.

Capital-Budgeting

The process by which organizations evaluate potential major projects or investments to determine their cost-effectiveness and alignment with business strategy.

Risk-Free Rate

The hypothetical yield of a risk-free investment, typically mirrored by the interest rate on sovereign debt.