A Project Requires an Initial Investment of $10,000, Straight-Line Depreciable

Multiple Choice

A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34% and you receive a tax credit for negative earnings in the year in which the loss occurs. Additional information for variables with forecast error are shown below. Suppose you want to conduct a sensitivity analysis for the possible changes in unit sales. What is the IRR when the sales level equals 3,250 units?

A) 32.6%
B) 42.8%
C) 57.9%
D) 118.6%
E) 121.5%