Which of the following statements is false?
A) If a project has a proﬁtability index greater than one the project should be accepted.
B) If a ﬁrm's target average accounting return is less than that calculated for a given project then the project should be accepted.
C) If the cost of capital is greater than the IRR, the project should be accepted.
D) If a project has a payback which is faster than the company requires the project should be accepted.
E) If the NPV of a project is positive, it should be accepted.

Question

Quizplus · Accepted Answer

If the cost of capital is greater than the IRR, the project should actually be rejected as this implies that the project's expected return is lower than the cost of capital. All other statements are true. A project with a profitability index greater than one will generate positive returns, a project with a target average accounting return greater than the calculated return for a project will generate higher returns, a project with a faster payback will generate returns quicker, and a project with a positive NPV will generate returns higher than the cost of capital.

Which of the Following Statements Is False