After a Long Drought, the Manager of Long Branch Farm

question 37

Multiple Choice

After a long drought, the manager of Long Branch Farm is considering the installation of an irrigation system which will cost $100,000. It is estimated that the irrigation system will increase revenues by $20,500 annually, although operating expenses other than depreciation will also increase by $5,000. The system will be depreciated using MACRS over its depreciable life (5 years) to a zero salvage value. If the tax rate on ordinary income is 40 percent, what is the project's IRR?

• A) 12.6%
• B) -1.3%
• C) 13.0%
• D) 10.2%
• E) -4.8%

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Definitions:

Slope

In mathematics, the slope defines the steepness and direction of a line, calculated as the ratio of the vertical change to the horizontal change between two points on the line.

Multiple Correlation

A mathematical method used to evaluate how strong the association is between one dependent variable and multiple independent variables.

Criterion Variables

The dependent variables in an experiment or study that are affected by other variables and are used to evaluate outcomes.

Predictor Variable

Variable in a correlational research study used to predict a criterion variable.