Question

You have just used the NPV method to determine that with a cost of capital of 10% a particular project is easily rejected. What else do you know for sure?

Group of answer choices

The project will have an IRR greater than 10%

The project will have an IRR less than 10%

Not enough information to answer

The project will have an IRR of exactly 10%

Answer 1

Answer: Option (2) The project will have an IRR less than 10%

Given that We have just used the NPV method to determine that with a cost of capital of 10%, a particular project will be easily rejected. Which implies that the NPV of the Project @ 10% is negative, Which means the Present Value of Cash Inflows of the Project discounted at 10% is not sufficient to recover the Present Value of Cash Outflows.

Which implies the Return(IRR) generated by this Project is Less than 10%.