Suppose You Have Put $5,000 into a Project That Should

question 22

Multiple Choice

Suppose you have put $5,000 into a project that should generate cash inflows of $1,250 for each of the next 5 years.If the interest rate is 8% is this a good investment?

• A) Yes, because you will earn a profit of $1,250 dollars in 5 years
• B) Yes, because the internal rate of return is higher than the interest rate
• C) No, because the internal rate of return is higher than the interest rate
• D) No, because the net present value is negative

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Definitions:

Social Science

The study of human society and social relationships, encompassing disciplines like psychology, sociology, and economics.

Marginal Cost

The change in overall cost resulting from the production of an additional unit.

Marginal Benefit

The gain in satisfaction or usefulness from consuming or producing a further unit of a good or service.

Rational Choice

A theory in economics and sociology that states individuals choose the most advantageous option considering the costs and benefits.