Project A has an IRR of 12%.The appropriate hurdle rate is 10%.If this is an investment project,then what should the company do about Project A?
A)Accept Project A.
B)Reject Project A.
C)Either accept or reject Project A as it makes no difference to the wealth of shareholders.
D)Not make any decision as there is insufficient information to decide if the project will be beneficial to the shareholders.

Question

Quizplus · Accepted Answer

The appropriate hurdle rate is 10%, meaning any project with an IRR greater than or equal to this rate would be considered acceptable. Since Project A has an IRR of 12%, it is generating a return that is higher than the required rate of return, and therefore should be accepted. Choosing option A is the best choice as it would maximize the value of the shareholders by accepting the project that generates a return greater than the required rate of return.

Project a Has an IRR of 12