A project should be accepted when the:
A) Proﬁtability index is less than 1.0.
B) AAR is less than the targeted AAR.
C) Net present value is negative.
D) IRR exceeds the required rate.
E) Payback period is greater than the prescribed number of years.

Question

Quizplus · Accepted Answer

The best choice is D as the decision rule for accepting a project is to compare the project's IRR with the required rate of return. If the IRR exceeds the required rate, the project should be accepted. Option A (Profitability index) and option C (Net present value) both require a positive value to accept a project. Option B (AAR) is not a reliable decision tool as it does not consider the time value of money. Option E (Payback period) also does not consider the time value of money and ignores cash flows after the payback period.

A Project Should Be Accepted When The