Assume a project has normal cash flows.According to the accept/reject rules,the project should be accepted if the
A)PI is less than 1.
B)AAR is less than the required AAR.
C)IRR exceeds the required return.
D)payback period is less than the life of the project.
E)discounted payback period is less than the life of the project.

Question

Quizplus · Accepted Answer

According to the accept/reject rules, a project should be accepted if the IRR exceeds the required return. This is because the IRR represents the rate at which the project's future cash flows are discounted to arrive at the present value of those cash flows. If the IRR is greater than the required return, then the project is expected to generate a return greater than the opportunity cost of the capital invested in it. Therefore, the project should be accepted. The other options listed in the question are not correct because a project should be rejected if its PI is less than 1, its AAR is less than the required AAR, its payback period is greater than the life of the project, or its discounted payback period is greater than the life of the project.

Assume a Project Has Normal Cash Flows