A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. If the firm's required return or cost of capital is 15%, should it accept the project using the IRR as a decision criteria?
A) yes
B) no
C) only if the NPV is less than 1
D) only if the PI is negative

Question

Quizplus · Accepted Answer

The IRR (Internal Rate of Return) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. If the IRR is greater than the firm's required return or cost of capital, the project should be accepted. In this case, without calculating the exact IRR, we know that if the firm's required return is 15%, and the project is being considered, the IRR must be at least 15% or higher, making the project acceptable based on the IRR decision criteria.

A Firm Is Evaluating a Proposal Which Has an Initial