You are considering an investment project with an internal rate of return of 8.7 percent,a net present value of $393,and a payback period of 2.44 years.Which one of the following is correct given this information?
A)The discount rate used in computing the net present value was less than 8.7 percent.
B)The discounted payback period will be less than 2.44 years.
C)The discount rate used to compute the net present value is equal to the internal rate of return.
D)The required payback period must be greater than 2.44 years.
E)This project should be rejected based on the net present value.

Question

Quizplus · Accepted Answer

The net present value (NPV) of a project is positive ($393), which indicates that the discount rate used in computing the NPV is less than the internal rate of return (IRR) of 8.7 percent. If the discount rate were higher than the IRR, the NPV would be negative.

You Are Considering an Investment Project with an Internal Rate