You are considering a project with conventional cash flows and the following characteristics: Which of the following statements is correct given this information?
I.The discount rate used in computing the net present value was less than 11.63 percent.
II.The discounted payback period must be more than 2.98 years.
III.The discount rate used in the computation of the profitability ratio was 11.63 percent.
IV.This project should be accepted as the internal rate of return exceeds the required return.
A)I and II only
B)III and IV only
C)I, II, and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question

You are considering a project with conventional cash flows and the following characteristics:  Which of the following statements is correct given this information?
I.The discount rate used in computing the net present value was less than 11.63 percent.
II.The discounted payback period must be more than 2.98 years.
III.The discount rate used in the computation of the profitability ratio was 11.63 percent.
IV.This project should be accepted as the internal rate of return exceeds the required return.
A)I and II only 
B)III and IV only 
C)I, II, and IV only 
D)II, III, and IV only 
E)I, II, III, and IV

Quizplus · Accepted Answer

I. The statement is correct as if the discount rate used in computing the net present value was equal to or greater than 11.63 percent, the NPV would have been negative.
II. The statement is correct as the discounted payback period is the time taken for the discounted cash inflows to equal the initial investment, and in this case, it would be more than 2.98 years.
III. The statement is correct as the profitability ratio is calculated as the present value of cash inflows divided by the initial investment, and in this case, the discount rate used in the computation of the ratio was 11.63 percent.
IV. The statement is incorrect as the question does not provide information on the required return or hurdle rate. Therefore, it cannot be determined whether the project's IRR exceeds the required return or not.

You Are Considering a Project with Conventional Cash Flows and the Following