IIInS lllust have made . DISCuss the validity of this statement. 4 Following is
ID: 2797722 • Letter: I
Question
IIInS lllust have made . DISCuss the validity of this statement. 4 Following is a table Alice used to construct an NPV profile for Project K: Rate of Return (r) NPV $13,609 5,723 5% 10 15 20 25 94 (4,038) (7,147) prepared to discuss your answers. a. Project K should be purchased if a firm has a required rate of return equal b. To determine whether Project K is acceptable, the IRR should be c. Project K has an internal rate of return that is between 15 and d. Project K should be rejected if a firm has a required rate of return equal to e. If one firm determines that Project K should be purchased, another firm to 12 percent. computed. 20 percent. 20 percent. ne that it should not be purchased.Explanation / Answer
B. is incorrect.
Computing the IRR will not give an indication as to whether the project is acceptable or should be rejecterd. The IRR merely provides the breakeven point for the project, which in this case, will be between the 15-20% bracket. It provides the rate at which the NPV of a project is 0. The figure of IRR would depend on various factors, and can be interpreted in different manners, from industry to industry and depending on the nature and risk of the project. It does not provide an objective opinion on the acceptability of the project.