A project is estimated to have a net present value equal to $85,000. The risk-ad

Question

A project is estimated to have a net present value equal to $85,000. The risk-adjusted opportunity cost of capital is 15 percent. Which of the following statements is most correct?

a. The project’s internal rate of return (IRR) is less than 15 percent.

b. The project’s IRR is zero.

c. The project’s IRR is greater than 15 percent.

d. The project’s IRR is equal to 15 percent.

e. The project should be rejected because its IRR cannot be calculated.

a. The project’s internal rate of return (IRR) is less than 15 percent.

b. The project’s IRR is zero.

c. The project’s IRR is greater than 15 percent.

d. The project’s IRR is equal to 15 percent.

e. The project should be rejected because its IRR cannot be calculated.

Explanation / Answer

c. The project’s IRR is greater than 15 percent.

Since, NPV is positive, therefore IRR is greater than the cost of capital.

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