Project Black Swan Requires an Initial Investment of $115,000

question 22

Multiple Choice

Project Black Swan requires an initial investment of $115,000.It has positive cash flows of $140,000 for each of the next two years.Because of major demolition and environmental clean-up costs,cash flow for the third and final year of the project is $(170,000) .If the company 's required rate of return is 12%,the project should be:

• A)rejected because the IRR is less than 12%.
• B)accepted because the NPV is positive at 16%.
• C)the project is unacceptable at any discount rate.
• D)rejected because there may be more than one IRR.

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Definitions:

Equity Multiplier

This financial ratio measures a company’s total assets financed by stockholders, indicating the leverage level relative to equity.

Debt-Equity Ratio

A measure of a company's financial leverage, calculated by dividing total liabilities by shareholders' equity.

Return On Equity

An indicator of how effectively a company uses investor funds to produce profit growth, determined by dividing the net income by the equity of shareholders.

Inventory Turnover

A measure of how many times a company's inventory is sold and replaced over a certain period of time.