Question

A company estimates that its required rate of return is 18 percent on its capital investments. It is considering the following independent projects. Select all that are true.

Question 5 options:

	It should accept Project C, which requires an initial investment of $1,000,000 and generates an IRR of 19 percent.
	Project F, which has $439 NPV, must have an IRR that is higher than 18%.
	It should accept Project A, which requires an initial investment of $145,000 and has a NPV of $18.
	It should reject Project E, which has an IRR of 18.5 percent with a payback of 11 years.
	It should accept Project B, which has an IRR of 16.5 percent.
	It should accept Project D, which requires an initial investment of $1,250,000 and generates a payback of 4.5 years.

Answer 1

For a project to be accepted, its IRR must be greater than or equal to the required rate of return of the firm i.e. IRR must be greater than or equal to 18%. If it is given that NPV is a positive number, then the IRR must be greater than 18%( Assuming normal cash flows).

So, the following options are correct:

It should accept Project C, which requires an initial investment of $1,000,000 and generates an IRR of 19 percent.

Project F, which has $439 NPV, must have an IRR that is higher than 18%

It should accept Project A, which requires an initial investment of $145,000 and has a NPV of $18