An investment has the following cash ﬂows. Should the project be accepted if it has been assigned
a required return of 9.5 percent? Why or why not?
A) Yes; because the IRR exceeds the required return by about 0.39 percent.
B) Yes; because the IRR is less than the required return by about 3.9 percent.
C) Yes; because the IRR is positive.
D) No; because the IRR exceeds the required return by about 3.9 percent.
E) No; because the IRR is 9.89 percent.

Question

An investment has the following cash ﬂows. Should the project be accepted if it has been assigned
a required return of 9.5 percent? Why or why not?  
A) Yes; because the IRR exceeds the required return by about 0.39 percent. 
B) Yes; because the IRR is less than the required return by about 3.9 percent. 
C) Yes; because the IRR is positive. 
D) No; because the IRR exceeds the required return by about 3.9 percent. 
E) No; because the IRR is 9.89 percent.

Quizplus · Accepted Answer

The question is asking whether the project should be accepted if its cash flows can generate a return higher than the required return of 9.5%. The best method to answer this question is to calculate the internal rate of return (IRR) of the cash flows and compare it to the required return. Using a financial calculator or Excel, the IRR of the cash flows is approximately 9.89%. Since the IRR exceeds the required return by about 0.39%, the project should be accepted. Therefore, the correct choice is A.

An Investment Has the Following Cash ﬂOws