Question

The general rule when using the Internal Rate of Return to decide whether to invest in capital assets is to invest if the IRR the required rate of return OA. exceeds ○ B. does not exceed D C. is half as much as ○ D. Cannot determine from the information given

Answer 1

Solution	1	Answer is A
		Bcoz if the IRR is greater than Required rate of return that means we r earning more than the expectation or cost which we r spending.
	2	Answer is B
		Payback period means in which period we will get our funds back which we have spended in initial year. Hence we will choose that project which has the lowest pay back period.
	3	Answer is B
		Calculation of payback period
		Particulars	Project 1	Project 2
		Investment	400000	280000
		Estimated cash inflows	90000	65000
		Payback period (Investment / annual cash flows)	4.444444	4.307692
		Payback period means in which period we will get our funds back which we have spended in initial year. Hence we will choose that project which has the lowest pay back period.
		here project B has lowest payback period
	4	Answer is D
		Calculation of accoutning rate of return
		Particulars	Indiana	kentucky
		Investment	1810000	2000000
		residual Value	80000	40000
		estimated cash flows	700000	800000
		rate of return	13	13
		Depreciation (Investment less salvage value)/estimated life	288333.3	326666.7
		Accoutning profit (Cash flows less depreciation)	411666.7	473333.3
		Acccoting rate of return (Accounting profit/investments)	22.74401	23.66667
		Since accounting rate of return of kentucky is more, it is more beneficial