Question

Which of the following statements is true about the internal rate of return (IRR)? a.If the...

Which of the following statements is true about the internal rate of return (IRR)?

a.If the IRR is less than the required rate of return, the firm is indifferent between accepting or rejecting the investment proposal.

b.If the IRR is greater than the required rate, the project is deemed acceptable.

c.If the IRR is less than the required rate of return, the project is deemed acceptable.

d.If the IRR is greater than the required rate of return, the firm is indifferent between accepting or rejecting the investment proposal.

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Answer #1

The correct answer is

B) If the IRR is greater than the required rate, the project is deemed acceptable

explanation

Internal rate of return refers to the rate at which the present value of inflows and outflows are same and NPV is Zero. Higher the IRR it is more better the project is. If the IRR is greater then the required rate of return then the project is acceptable because then at required rate of return NPV will be positive as this rate is less then IRR.

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