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Two firms examined the same capital budgeting project which had an IRR of 16%. One firm...

Two firms examined the same capital budgeting project which had an IRR of 16%. One firm accepted the project but the other rejected it. One of the firms must have made an incorrect decision.

Discuss the validity of this statement. Be specific.

Can I have original answer. Thank you

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Answer #1

Discuss the validity of this statement. ?

The statement is incorrect. Internal rate of return (IRR) is the return that make Present Value of Cashoutflow is equal to present value of cashinflow.

Different companies have different cost of capital and the firm which accept the project have lower cost of capital than 16% and the firm which reject the project have higher cost of capital than 16%.

Hence the statement is not correct.

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