Question

If your firm has an unlimited capital budget, all projects are independent, and a project has a Net Present Value of zero, which of the following are true?

Your firm should not accept the project.

Your firm should accept the project.

You should calculate either the Internal Rate of Return or the Modified Internal Rate of Return to help determine whether to accept the project.

None of the above are true.

Answer 1

Answer: The correct option is "your firm should accept the project."
Explanation:
NPV>0; it means the rate of return a project generates is greater than the required rate of return. The project is acceptable.
NPV=0; it means the rate of return a project generates is equal to the required rate of return. The project is acceptable.
NPV<0; it means the rate of return a project generates is less than the required rate of return. The project is not acceptable.
If the cash flow of a project is not affected by whether we accept or reject other projects, then it is called as independent project.
All the independent projects with NPV>0 and NPV=0 should be accepted.