Stan calculated that the net present value of his investment would be zero with a 15 percent internal rate of return.This means that
A) the project has no value.
B) 15 percent can be compared to the required rate of return to determine if the project should be accepted.
C) the project requires an additional 15 percent investment on the part of the company.
D) the project will pay back the investment in 15 years.

Question

Quizplus · Accepted Answer

A net present value of zero with a 15 percent internal rate of return means that the project is expected to earn a return equal to the required rate of return. Therefore, comparing the 15 percent internal rate of return to the required rate of return can help determine if the project should be accepted. Option A is incorrect as a zero net present value does not necessarily mean that the project has no value. Option C is incorrect as there is no indication that the project requires an additional 15 percent investment. Option D is incorrect as the 15 percent internal rate of return is not related to the payback period of the project.

Stan Calculated That the Net Present Value of His Investment