If the net present value of a project which costs $20,000 is $5,000 when the discount rate is 10 percent, then the:
A)project's IRR equals 10 percent.
B)project's internal rate of return is greater than 10 percent.
C)net present value of the cash inflows is $4,500.
D)project's cash inflows total $25,000.

Question

Quizplus · Accepted Answer

DThe net present value (NPV) of a project is positive ($5,000), which means the project's internal rate of return (IRR) must be higher than the discount rate used (10 percent), making choice B correct. Additionally, since the NPV is the difference between the present value of cash inflows and the project's cost, and the NPV is $5,000 with a project cost of $20,000, the total present value of cash inflows must be $25,000, making choice D correct.

If the Net Present Value of a Project Which Costs