Tressor Company Is Considering a 5-Year Project

question 115

Multiple Choice

Tressor Company is considering a 5-year project. The company plans to invest $90,000 now and it forecasts cash flows for each year of $27,000. The company requires that investments yield a discount rate of at least 14%. Selected factors for a present value of an annuity of $1 for five years are shown below: Calculate the internal rate of return to determine whether it should accept this project.

• A) The project should be accepted because it will earn more than 14%.
• B) The project should be accepted because it will earn more than 10%.
• C) The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.
• D) The project should be rejected because it will earn less than 14%.
• E) The project should be rejected because it will not earn exactly 14%.

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Definitions:

0.01

A numerical value representing one hundredth, often used in statistics, measurements, and as a decimal in mathematical calculations.

Product

The result of multiplying two numbers together.

Dividing

The act of separating or partitioning something into two or more parts or sections.

Cups

Commonly used household items that serve as containers for drinking liquids.