A project has an internal rate of return of 14%, while the company's required rate of return is 11%. Based only on the IRR rule, the project should be:
Correct answer: B. Accepted because IRR exceeds the required return
- A. Rejected because IRR exceeds the required return
- B. Accepted because IRR exceeds the required return
- C. Rejected because IRR is a percentage measure
- D. Accepted only if its payback period is shortest
Explanation
Under the IRR decision rule, a project is normally accepted when its IRR is greater than the required rate of return. The difference indicates that the project is expected to earn more than its financing benchmark.
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