Question

16. You are considering a project with characteristics: shows and the tong 11.53 percent Internal rate of return Profitability ratio Net present value Payback period $987 2.98 years Which of the following statements is correct given this information? 1. The discount rate used in computing the net present value was less than 11.55 percent. II. The discounted payback period must be more than 2.98 years. III. The discount rate used in the computation of the profitability ratio was 11.65 percent IV. This project should be accepted as the internal rate of return exceeds the required return. A. I and II only B. III and IV only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV

Answer 1

rate positively ..

Ans 1	Correct answer is option : C) I, II and IV only
	this is because, As NPV is positive therefore discounting rate used is less than IRR.
	Regular payback period is always higher than discounted payback period unless the discounting rate is zero.
	As per IRR project should be accepted as IRR rate is higher than required rate.
Ans 2
	Price today = Expected dividend next year/(required rate - growth rate)
	Groth rate =		0%
	Expected dividend next year =		20
	required rate =		12%
	price today =	20/12%	166.67
	Correct answer is option C) $166.67