A Firm Is Considering a Project Requiring an Investment of $27,000

question 20

Multiple Choice

A firm is considering a project requiring an investment of $27,000. The project would generate an annual cash flow of $6,296 for the next seven years. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. The approximate internal rate of return for the project is

• A) 6%.
• B) 8%.
• C) 12%.
• D) 14%.

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Definitions:

Debt-to-Equity Ratio

A financial ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets.

Total Assets

Total assets refer to the sum of all current and non-current assets owned by a business at a given point in time.

Total Liabilities

The sum of all financial obligations a company owes to external parties at a given time.

Times Interest Earned

A financial ratio that measures a company's ability to meet its interest obligations, calculated as earnings before interest and taxes divided by interest expenses.