You are considering a project with conventional cash flows. The IRR is 12.6 perc

Question

You are considering a project with conventional cash flows. The IRR is 12.6 percent, NPV is –$198, and the payback period is 2.87 years. Which one of the following statements is correct given this information?

Select one:

A. The discounted payback period will have to be less than 2.87 years.

B. This project should be accepted based on the internal rate of return.

C. The required rate of return must be greater than 12.6 percent.

D. The project life must be 2.87 years.

E. The discount rate used in computing the net present value was less than 12.6 percent.

Explanation / Answer

C. The required rate of return must be greater than 12.6 percent.

Since the project has a negative NPV, the IRR will also be less than the required rate of return in case of a conventional cash flow.

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