A capital expenditure project has an expected 20 percent internal rate of return and a $10,000 net present value. It has one cash flow sign change.
A) The discount rate used to calculate NPV is greater than 20 percent
B) The project has another internal rate of return in addition to the 20 percent rate mentioned above
C) In the internal rate of return calculation, the project's cash inflows are assumed to be reinvested at the firm's required rate of return
D) None of the above

Question

Quizplus · Accepted Answer

The discount rate used to calculate NPV is less than the IRR (20%) since NPV is positive. There is only one IRR due to one cash flow sign change. IRR assumes reinvestment at the IRR, not the firm's required rate.

A Capital Expenditure Project Has an Expected 20 Percent Internal