An investment has the following cash flows.Should the project be accepted if it has been assigned a required return of 9.5%? Why or why not?

A)Yes; because the IRR exceeds the required return by about 0.39%
B)Yes; because the IRR is less than the required return by about 3.9%
C)Yes; because the IRR is positive
D)No; because the IRR exceeds the required return by about 3.9%
E)No; because the IRR is 9.89%

Question

An investment has the following cash flows.Should the project be accepted if it has been assigned a required return of 9.5%? Why or why not?

A)Yes; because the IRR exceeds the required return by about 0.39% 
B)Yes; because the IRR is less than the required return by about 3.9% 
C)Yes; because the IRR is positive 
D)No; because the IRR exceeds the required return by about 3.9% 
E)No; because the IRR is 9.89%

Quizplus · Accepted Answer

The question refers to the internal rate of return (IRR) of the investment. If the IRR is greater than the required return, it means that the investment is expected to generate a return higher than what is required, which is a good thing. In this case, the IRR exceeds the required return by about 0.39%, which is a small difference but still favorable. Therefore, the project should be accepted.

An Investment Has the Following Cash Flows