Project Black Swan Requires an Initial Investment of $115,000

question 66

Multiple Choice

Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $(170,000) . If the company 's required rate of return is 12%, the project should be

• A) rejected because the IRR is less than 12%.
• B) accepted because the NPV is positive at 12%.
• C) the project is unacceptable at any discount rate.
• D) rejected because there may be more than one IRR.

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Definitions:

Vertical Axis

The y-axis in a graph or chart, which is typically used to represent the range of one of the variables in the data.

Phillips Curve

An economic theory that suggests an inverse relationship between the rate of inflation and the unemployment rate.

Aggregate Demand

The overall requirement for products and services in an economic setting, identified at a specific price level and time period.

Short-Run Aggregate Supply

The total supply of goods and services that firms in an economy plan on selling during a short-term period, assuming some input prices are fixed.