You are considering a project with the following data: IRR = 8.7 percent; PI = .

Question

You are considering a project with the following data: IRR = 8.7 percent; PI = .98; NPV = -$393; Payback period = 2.44 years. Which one of the following statements is correct given this information?

a The discount rate used in computing the net present value must have been less than 8.7 percent. b The discounted payback period will have to be less than 2.44 years. c The discount rate used to compute the profitability ratio was equal to the internal rate of return. d This project should be accepted based on the profitability ratio. e The required rate of return must be greater than 8.7 percent.

Explanation / Answer

Correct option:

b The discounted payback period will have to be less than 2.44 years.

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