A Project Has an Initial Cash Inflow of $36,400 and a Cash

question 58

Multiple Choice

A project has an initial cash inflow of $36,400 and a cash outflow of $42,900 in Year 1.The discount rate is 20 percent.Should this project be accepted or rejected based on IRR? Why?

• A)Accepted: because the IRR of 17.86 percent is less than the discount rate
• B)Accepted: because the IRR of 15.15 percent is less than the discount rate
• C)Accepted: because the IRR of 11.23 percent is less than the discount rate
• D)Rejected: because the IRR of 17.86 percent is less than the discount rate
• E)Rejected: because the IRR of 15.15 percent is less than the discount rate

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Definitions:

Framing Effect

A cognitive bias where people react differently based on the way information is presented to them, particularly in decisio-making scenarios.

Category Hierarchies

Organizational systems that classify groups or objects into ranked categories based on shared characteristics or importance.

Representativeness Heuristic

A cognitive shortcut where the likelihood of an object belonging to a category is assessed based on how typical the object seems of the category.

Confirmation Bias

The inclination to seek out, comprehend, prioritize, and recall facts in a manner that corroborates one's established beliefs or conjectures.