Question

Testbank Question 85

An organization that provides housing for abused women has limited housing, so it pays rent for several families. The director is considering expanding the housing facilities by purchasing a small triplex that has a useful life of 10 years. The estimated cost is $100,000. Using a discount rate of 15%, the present value of the future savings on rent is $120,000. To yield an internal rate of return that is at least 15%, the actual cost cannot exceed the estimated cost of $100,000 by more than:

$10,038

$3,985

$20,000

$2,000

Answer 1

Option 'C' is correct

$20,000

Present value of Future savings on rent is $120,000 using a 15% discount rate.

if Internal rate of return = 15%, then Actual cost cannot exceed the estimated cost of $100,000 by more than ($120,000 - $100,000) = $20,000