Question #55793

For the following cashflows, the project may have up to?

Year Cashflow

0 -$500

1 0

2 0

3 400

4 -50

5 300

a. one RORs

b. two RORs

c. three RORs

d. Four RORs

Year Cashflow

0 -$500

1 0

2 0

3 400

4 -50

5 300

a. one RORs

b. two RORs

c. three RORs

d. Four RORs

Expert's answer

The rate of return is always expressed as a percentage and is calculated using the following formula:

ROR = (Net Income / Investment Cost) x 100

In our case maximal net income will be the sum of all cash flows with the 0% discount rate, so the maximal ROR is:

RORmax = (0 + 0 + 400 - 50 + 300)/500 = 650/500 = 1.3, so the right answer is a. one RORs.

ROR = (Net Income / Investment Cost) x 100

In our case maximal net income will be the sum of all cash flows with the 0% discount rate, so the maximal ROR is:

RORmax = (0 + 0 + 400 - 50 + 300)/500 = 650/500 = 1.3, so the right answer is a. one RORs.

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