A Company Is Considering a 5-Year Project

question 109

Multiple Choice

A company is considering a 5-year project. The company plans to invest $60,000 now and it forecasts cash flows for each year of $16,200. 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:

• A) The project should be accepted.
• B) The project should be rejected because it earns more than 10%.
• C) The project earns more than 10% but less than 12%. If the hurdle rate is 12%, the project should be rejected.
• D) Only 9% is acceptable.
• E) Only 10% is acceptable.