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The internal rate of return: Does not require a predetermined discount rate Is o

ID: 2499602 • Letter: T

Question

The internal rate of return:

Does not require a predetermined discount rate

Is often used to rank investment proposals

May be compared to the cost of capital in project evaluation

All of the above

Clarinet Publishing is considering the purchase of a used printing press costing $38,400. The printing press would generate a net cash inflow of $20,000 a year for 5 years. At the end of 5 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation.

The project’s accounting

32 percent

19 percent

39 percent

75 percent

Long Horn Medical Services is considering an investment of $100,000. Data related to the investment and present value factors are as follows:

Year

Cash Inflows

Present Value of $1.00

1

$50,000

0.85

2

46,000

0.72

3

60,000

0.61

4

80,000

0.52

5

50,000

0.44

The investment’s net present value is:

$ 62,920

$120,000

$175,820

$ 75,820

Does not require a predetermined discount rate

Is often used to rank investment proposals

May be compared to the cost of capital in project evaluation

All of the above

Explanation / Answer

Answer: (1) All of the above

The internal rate of return:

Does not require a predetermined discount rate

Is often used to rank investment proposals

May be compared to the cost of capital in project evaluation

Answer 2: 32%

  

Answer: 3 NPV = $75820

Year Net Cash Flows Depreciation: (38400/5) Accounting Profit 0 -38400 1 20000 -7680 12320 2 20000 -7680 12320 3 20000 -7680 12320 4 20000 -7680 12320 5 20000 -7680 12320
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