A Company Is Considering a Five-Year Project

question 135

Essay

A company is considering a five-year project.It plans to invest $60,000 now and forecasts cash flows of $16,200 for each year.The company requires a hurdle rate of 12%.Calculate the internal rate of return to determine whether it should accept this project.Selected factors for a present value of an annuity of 1 for five years are shown below:
$$\begin{array}{cc}\underline{\text{Interest}}&&\underline{\text{Present Value of an Annuity of 1}}\\\underline{\text{ Rate}}&&\underline{\text{ Factor}}\\10 \%&&3.7908 \\12 \%&&3.6048 \\14 \%&&3.4331\end{array}$$

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Definitions:

WAIS

Wechsler Adult Intelligence Scale, a standard test used to measure an adult's intellectual and cognitive ability.

Stanford-Binet

An intelligence test designed to measure five factors of cognitive ability: fluid reasoning, knowledge, quantitative reasoning, visual-spatial processing, and working memory.

Intellectual Disability

A condition characterized by significant limitations in both intellectual functioning and in adaptive behavior, which covers many everyday social and practical skills.

Savant Syndrome

A rare condition in which someone with significant mental disabilities demonstrates certain abilities far in excess of average.