Which one of the following projects should you accept? &nbs
- Which one of the following projects should you accept?
A project with an IRR of 12.7 percent and a required return of 13 percent.
B. A project with an NPV of -$121.21. C. A project with a PI of 1.03. D. A project with an AAR of 13.8 percent and a required AAR of 14 percent.
Homework Answers
C. A project with a PI of 1.03.
Profitability Index = Present Value of Future cash flow / Initial investment. So when PI is greater than 1, Present value of inflow is greater than Initial investment. So the project is profitable
Option A is wrong as IRR is less than required return
Option B is not acceptable as it gives negative NPV
Option D is not profitable as AAR is less than required rate
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