Union Atlantic Corporation, which has a required rate of return equal to 14 percent, is evaluating a capital budgeting project that has the following characteristics: Union Atlantic's capital budgeting manager has determined that the project's net present value is $7,008.According to this information, which of the following statements is correct?
A) The project's internal rate of return (IR
R) must be greater than 14 percent.
B) The project's discounted payback must be less that its economic life.
C) The project should be purchased by Union Atlantic.
D) All of these statements are correct.
E) None of these statements is correct.

Question

Union Atlantic Corporation, which has a required rate of return equal to 14 percent, is evaluating a capital budgeting project that has the following characteristics:  Union Atlantic's capital budgeting manager has determined that the project's net present value is $7,008.According to this information, which of the following statements is correct?
A) The project's internal rate of return (IR
R) must be greater than 14 percent. 
B) The project's discounted payback must be less that its economic life. 
C) The project should be purchased by Union Atlantic. 
D) All of these statements are correct. 
E) None of these statements is correct.

Quizplus · Accepted Answer

Since the project has a positive net present value, it is expected to generate more cash inflows than outflows, resulting in a profit. Therefore, Union Atlantic should purchase the project. The information provided does not give any indication about the project's internal rate of return or discounted payback.

Union Atlantic Corporation, Which Has a Required Rate of Return