est: Multipie Clapto This ion: 4 pts This Test: 100 pts past du in the area. Whe
ID: 2657951 • Letter: E
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est: Multipie Clapto This ion: 4 pts This Test: 100 pts past du in the area. When a repair it on the spot he puts in a replacement machine so that the broken one can be taken to the firm's repair facility in Murfreesboro, Tennessee. Betsy has been trying to in her BBA from a nearby and as much of what she learned as possible into the of her family business and major capital s he should make in the current year based on a comparison of the rates of return she for each project (that is, the internal rate of return) and the firm's cost of capital. the firm is considering the following projects (ranked by their internal rate of return) 11 see sco being considered by Newcomb are of s?imilar risk and that risk is very similar to that of the as a whole, which projects) should Betsy fund its nvestments at the cost of capital of 12% Explan yoransaer. he firm a? You may that the firm can raise all the capital it needs to assume If the fim can raise all the capital it needs to fund its best choice below.) cost of investments at the cost of capital of 12%, which projects) should Betsy recommend he frm udrin S-ehe O A. Project E only because it offers the lowest rate of return. ??. Projects C, D, and E because they offer the rates of return that are less han the frm's 12% cost of capital. ° C. There is not enough iformation to make the investment decision. D. Pro ects A and B because they offer the rates of retum that exceed the firm's 12%cost of capital. O E. Project A only because it offers the highest rate of return. Grad Data Table INTERNAL RATE OF RETURN INVESTED CAPITAL 350,000 1,200,000 900,000 600,000 1,450,000 PROJECT 11% Click to select (Click on the icon located on the 0 ofExplanation / Answer
Internal rate of return (IRR) is the rate at which present value of cash inflows is equal to the initial investment of a project. Therefore, it is the rate at which NPV is zero. So, NPV would be positive if the cost of capital is below the IRR and it would be negative if cost of capital is above IRR.
In our current case, we will accept only those projects which have IRR > cost of capital of 12%.
Option D is correct - Projects A and B because they offer the rates of return that exceeds the firm's 12% cost of capital.
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