Luong Machines Company Is Evaluating an Investment of $1,100,000 Which

question 121

Multiple Choice

Luong Machines Company is evaluating an investment of $1,100,000 which will yield net cash inflows of $197,062 per year for 7 years with no residual value. What is the internal rate of return? Present value of ordinary annuity of $1:
$$\begin{array} { | c | c | c | c | c | } \hline & 5 \% & 6 \% & 7 \% & 8 \% \\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 \\\hline 2 & 1.859 & 1.833 & 1.808 & 1.783 \\\hline 3 & 2.723 & 2.673 & 2.624 & 2.577 \\\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 \\\hline 5 & 4.329 & 4.212 & 4.100 & 3.993 \\\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 \\\hline 7 & 5.786 & 5.582 & 5.389 & 5.206 \\\hline 8 & 6.463 & 6.21 & 5.971 & 5.747 \\\hline 9 & 7.108 & 6.802 & 6.515 & 6.247 \\\hline 10 & 7.722 & 7.36 & 7.024 & 6.71 \\\hline\end{array}$$

• A) 5%
• B) 6%
• C) 7%
• D) 8%

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Definitions:

Intangible Asset

A non-physical asset possessing value, such as patents, trademarks, copyrights, and goodwill.

Fair Value

The estimated price at which an asset or liability could be traded in a fair transaction between willing parties, other than in a forced or liquidation sale.

Net Realizable Value

The estimated selling price in the ordinary course of business, minus any costs of completion, disposal, and transport.

Going Concern

An accounting principle where it's assumed that a company will continue in business for the foreseeable future without the need to cease operations or liquidate assets.