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.

Question

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.

Quizplus · Accepted Answer

$165,000 - $172,000/(1 + IRR) = 0; IRR = 4.24 percent

Rosa's Designer Gowns Creates Exquisite Gowns for Special Occasions on a Prepaid