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Greentree Company Ltd., a priv contracting firm, has an opportunity for a diseased citru

Greentree Company Ltd., a priv contracting firm, has an opportunity for a diseased citru

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Greentree Company Ltd., a private contracting firm, has an opportunity for a diseased citrus tree removal contract over the next 5 years. The contract calls for the municipal government to pay Greentree $300,000 at the start of the contract and nothing for the remainder of the contract. Greentree estimates that its expenses will be $85,000 at the end of each of the 5 years. If Greentree uses IRR to evaluate its opportunities, it would only accept this contract if the discount rate (hurdle rate) is: (A)Greater than 10.42% (B) Less than 10.42% (C) Greater than 12.86% (D) Less than 12.86% (E) Greater than 28.33%
Transcribed Image Text:Greentree Company Ltd., a private contracting firm, has an opportunity for a diseased citrus tree removal contract over the next 5 years. The contract calls for the municipal government to pay Greentree $300,000 at the start of the contract and nothing for the remainder of the contract. Greentree estimates that its expenses will be $85,000 at the end of each of the 5 years. If Greentree uses IRR to evaluate its opportunities, it would only accept this contract if the discount rate (hurdle rate) is: (A)Greater than 10.42% (B) Less than 10.42% (C) Greater than 12.86% (D) Less than 12.86% (E) Greater than 28.33%
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