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: Interest rate 10% 12% 14% Present value of an annuity of $1 factor for year 5 3.7908 3.6048 3.4331 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: Interest rate 10% 12% 14% Present value of an annuity of $1 factor for year 5 3.7908 3.6048 3.4331 Calculate the internal rate of return to determine whether it should accept this project.
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
Related questions
Question
Subject:
Transcribed Image Text: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:
Interest rate
10%
12%
14%
Present value of an annuity
of $1 factor for year 5
3.7908
3.6048
3.4331
Calculate the internal rate of return to determine whether it should accept this project.
Transcribed Image Text:O
O
The project should be accepted because it will earn more than 14%.
The project should be accepted because it will earn more than 10%.
The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.
The project should be rejected because it will earn less than 14%.
The project should be rejected because it will not earn exactly 14%.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education