A Company Is Considering an Iron Ore Extraction Project That

question 58

Multiple Choice

A company is considering an iron ore extraction project that requires an initial investment of $1,300,000 and will yield annual cash flows of $789,314 for two years.The company's discount rate is 9%.Calculate IRR. Present value of ordinary annuity of $1:
$$\begin{array} { r r r r r r r r } & 10 \% & 12 \% & 14 \% & 15 \% & 16 \% & 18 \% & 20 \% \\1 & 0.909 & 0.893 & 0.877 & 0.870 & 0.862 & 0.847 & 0.833 \\2 & 1.736 & 1.690 & 1.647 & 1.626 & 1.605 & 1.566 & 1.528 \\3 & 2.487 & 2.402 & 2.322 & 2.283 & 2.246 & 2.174 & 2.106 \\4 & 3.170 & 3.037 & 2.914 & 2.855 & 2.798 & 2.690 & 2.589\end{array}$$

• A) 14%
• B) 16%
• C) 13%
• D) 12%

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Definitions:

Pro Forma Numbers

Financial data that projections or estimates are based on, often used to show potential financial performance.

FASB Pronouncements

Official statements and standards issued by the Financial Accounting Standards Board (FASB) that dictate accounting methods and financial reporting practices.

Incremental Benefits

The additional advantages or gains received from an action or decision, beyond what was previously available.