You are considering a project with conventional cash flows, an IRR of 11.63 percent, a PI of 1.04, an NPV of $987, and a payback period of 2.98 years. Which one of the following statements is correct given this information?
A) The discounted payback period must be greater than 2.98 years.
B) The break-even discount rate must be less than 11.63 percent.
C) The discount rate used in computing the net present value was less than 11.63 percent.
D) The AAR is equal to the IRR/PI.
E) The project should be rejected based on its PI value.

Question

Quizplus · Accepted Answer

The discount rate used in computing the net present value (NPV) was less than 11.63 percent. This is because the NPV is positive, indicating that the project's cash inflows exceed its outflows, which only occurs when the discount rate used to calculate the NPV is less than the project's IRR. Therefore, we know that the discount rate is less than 11.63 percent. Choices A, B, D, and E are all incorrect.

You Are Considering a Project with Conventional Cash Flows, an IRR