A company is contemplating investing in a new piece of manufacturing machinery.
ID: 2485422 • Letter: A
Question
A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company’s desired rate of return is $105,000. The IRR on the project is 12%. Which of the following statements is true? a. The desired rate of return used to calculate the present value of the future cash flows is equal to 12%. b. The project should not be accepted because the net present value is negative. c. The desired rate of return used to calculate the present value of the future cash flows is less than 12%. d. The desired rate of return used to calculate the present value of the future cash flows is more than 12%.
Explanation / Answer
The desired rate of return used to calculate the present value of the future cash flows is equal to 12%.
NPV of the project is positive
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