A company estimates that its required rate of return is 16 percent. Which of the

Question

A company estimates that its required rate of return is 16 percent.   Which of the following projects should the company accept, if all these projects are independent? Question 5 options: Project A requires an initial investment of $2,000,000 and generates a NPV of $58. Project B has an IRR of 15.5 percent. Project C requires an initial investment of $1,000,000 and generates an IRR of 16 percent. None of the above. A company estimates that its required rate of return is 16 percent.   Which of the following projects should the company accept, if all these projects are independent? A company estimates that its required rate of return is 16 percent.   Which of the following projects should the company accept, if all these projects are independent? Project A requires an initial investment of $2,000,000 and generates a NPV of $58. Project B has an IRR of 15.5 percent. Project C requires an initial investment of $1,000,000 and generates an IRR of 16 percent. None of the above. Project A requires an initial investment of $2,000,000 and generates a NPV of $58. Project B has an IRR of 15.5 percent. Project C requires an initial investment of $1,000,000 and generates an IRR of 16 percent. None of the above. Project A requires an initial investment of $2,000,000 and generates a NPV of $58. Project B has an IRR of 15.5 percent. Project C requires an initial investment of $1,000,000 and generates an IRR of 16 percent. None of the above.

Explanation / Answer

You should choose Project A.

Reason: Project B has IRR less than required rate of return => NPV <0

Project C has IRR = required rate of return => NPV = 0

Only project A has positive NPV

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