A project has a required return of 15% and a ﬁve year life. Which of the following is inconsistent with the other four?
A) The discounted payback is ﬁve years
B) PI = 0
C) NPV = $0
D) IRR = 15%
E) The present value of the future cash ﬂows equals the initial outlay

Question

Quizplus · Accepted Answer

If the required return is 15% and the project has a five year life, it is possible for the discounted payback to be five years, the NPV to be $0, the IRR to be 15%, and the present value of future cash flows to equal the initial outlay. However, a project with a required return of 15% and a five year life cannot have a PI of 0, as a PI of 0 indicates that the project's present value of future cash inflows is exactly equal to the initial outlay. In order to have a required return of 15% and a five year life, the project's present value of future cash inflows must be greater than the initial outlay in order to achieve a positive NPV and a positive PI.

A Project Has a Required Return of 15% and a ﬁVe