When risk is explicitly accounted for in capital budgeting,a project will be acceptable to a firm if its IRR is greater than the firm's average required rate of return.

Question

Quizplus · Accepted Answer

When risk is explicitly accounted for in capital budgeting, a project will be acceptable to a firm if its NPV is positive, or its IRR is greater than the hurdle rate or the cost of capital. The statement in the question is incorrect because the required rate of return should be the project's specific required rate of return based on its risk level, not the firm's average required rate of return.

When Risk Is Explicitly Accounted for in Capital Budgeting,a Project