Calculate the internal rate of return to determine whether it should accept this project.
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:
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%.
A) The project should be accepted because it will earn more than 14%.
Explanation: Investment/Annual net cash flows = $90,000/$27,000 = 3.3333
The present value factor of 3.3333 falls above 14%.
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