Henry calculated that the net present value of his investment would be zero with a 15 percent internal rate of return.This means that:
A) the project has no value.
B) Henry can compare the 15 percent internal rate of return to the required rate of return to determine if the investment should be made.
C) the project requires an additional 15 percent investment by the company.
D) the project will break even in 15 years.

Question

Quizplus · Accepted Answer

The net present value of zero with a 15 percent internal rate of return means that the investment is earning a return equal to the required rate of return. Henry can compare the 15 percent internal rate of return to the required rate of return to determine if the investment should be made. A net present value of zero does not mean that the project has no value or requires an additional 15 percent investment by the company. Nor does it mean that the project will break even in 15 years.

Henry Calculated That the Net Present Value of His Investment