The required rate of return from a project is 10% and the internal rate of return of the project is 12%, hence the project should be Accepted Rejected Accepted only if NPV is also positive Rejected even if NPV is positive
Question
The required rate of return from a project is 10% and the internal rate of return of the project is 12%, hence the project should be Accepted Rejected Accepted only if NPV is also positive Rejected even if NPV is positive
Solution
The project should be accepted. This is because the internal rate of return (IRR) is higher than the required rate of return. The IRR is the discount rate that makes the net present value (NPV) of all cash flows (both positive and negative) from a project or investment equal to zero. If the IRR of a project exceeds the required rate of return, the project is considered a good choice, assuming all other factors are equal.
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