Which one of the following statements is correct?
A)If the IRR exceeds the required return, the profitability index will be less than 1.0.
B)The profitability index will be greater than 1.0 when the net present value is negative.
C)When the internal rate of return is greater than the required return, the net present value is positive.
D)Projects with conventional cash flows have multiple internal rates of return.
E)If two projects are mutually exclusive, you should select the project with the shortest payback period.

Question

Quizplus · Accepted Answer

When the internal rate of return (IRR) is greater than the required return, the net present value (NPV) is positive. This is because the IRR is the discount rate at which the NPV of the project equals zero. If the IRR is greater than the required return, it means that the project is generating more cash flows than needed to meet the required return, resulting in a positive NPV. Therefore, option C is the correct statement. The other statements are incorrect.

Which One of the Following Statements Is Correct