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MARR = 8%. Your consultancy business signs on with a new client. The client pays you $5000 up front as deposit toward future work. One year later the client makes another payment of $5000. The year after that you invest $16,000 into the project. The following year, in the third year, the client pays you the remaining balance of $5388. The project's precise ERR is within 0.5% of 12% 13% 14% 15% ☐ None of the above

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Answer:

The precise expected rate of return (ERR) can be calculated using the following formula:

ERR = (1 + MARR) x (1 - Tax Rate) / (1 - Tax + (Tax/100) * (1 - MARR))

We have MARR = 8%, tax rate = 30%, and total project cost = $26,388.

So,

ERR = (1 + 8%) * (1 - 0.3) / (1 - 0.3 + (0.9/100) * (1 - 8%))

ERR = (1.08) * (0.7) / (0.7 + 0.0816)

ERR ~= 11.24%

So the precise expected rate of return would be closest to 11%

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