-You Are Considering an Investment with the Following Cash Flows

question 107

Multiple Choice

-You are considering an investment with the following cash flows.If the required rate of return for this investment is 15.5 percent,should you accept the investment based solely on the internal rate of return rule? Why or why not?

• A) Yes;The IRR exceeds the required return.
• B) Yes;The IRR is less than the required return.
• C) No;The IRR is less than the required return.
• D) No;The IRR exceeds the required return.
• E) You cannot apply the IRR rule in this case.

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Definitions:

Investment Center

A segment or area of a business responsible for its own revenue, expenses, and assets, and its performance is measured by its return on investment.

Fixed Expenses

These are costs that do not change with the level of production or sales, such as rent, salaries, and insurance.

Return On Investment

A measure used to evaluate the efficiency of an investment or compare the efficiencies of several different investments.

Residual Income

The amount of income that an entity has after all costs and expenses, including the cost of capital, have been deducted.