Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only. The required return is 8 percent.

Motor City Productions sells original automotive art on a prepaid basis as each piece is uniquely designed to the customer's specifications. For one project, the cash flows are estimated as follows. Based on the internal rate of return (IRR), should this project be accepted if the required return is 9 percent?        A.  Accept the project. B.  Reject the project. C.  The IRR cannot be used to evaluate this type of project. D.  The firm should be indifferent to either accepting or rejecting this project. E.  Insufficient information is provided to make a decision based on IRR. $5,500 - $5,900/(1 + IRR) = 0; IRR = 7.27 percent

99.

Rosa's Designer Gowns creates exquisite gowns for special occasions on a prepaid basis only. The required return is 8 percent. Rosa has estimated the cash flows for one gown as follows. Should Rosa sell this gown at the price she is currently considering based on the estimated internal rate of return (IRR)?        A.  Rosa should sell the gown for $155,000. B.  Rose can sell the gown for as little as $153,819 and still earn her required return. C.  The gown must be sold for a minimum price of $159,259 if Rosa is to earn her required return. D.  The IRR decision rule cannot be applied to this project. E.  Insufficient information is provided to make a decision based on IRR. $165,000 - $172,000/(1 + IRR) = 0; IRR = 4.24 percent

100.	An investment project provides cash flows of $1,190 per year for 10 years. If the initial cost is $8,000, what is the payback period?    A.  3.36 years B.  5.28 years C.  6.72 years D.  8.13 years E.  never Payback = $8,000/$1,190 = 6.72 years