Question

Tyler is the vice president of long-term planning for the Triton Corporation. Tyler is considering a project that has an NPV of $28,500, and IRR of 14.2 percent, and a payback period of 3.5 years. The required return is 12.0 percent and the required payback period is 3.0 years. Which one of the following statements is correct concerning this situation?

The IRR appears to be too high given the value of the NPV.

The NPV criteria indicates accept while the IRR and payback criteria indicate a reject decision.

Using payback period criteria, the project will be rejected.

The NPV, IRR, and payback criteria all indicate an accept decision.

Answer 1

payback period criteria, the project will be rejected.

Explanation - Since NPV is positive project should be accepted....Since IRR of 14.2% is greater than 12% , project should be accepted...

But required payback is 3 Years while project payback is more than 3 Years i.e. 3.5 Year which means project should be rejected.