Question

An independent project should be accepted if it A. produces a net present value that is...

An independent project should be accepted if it

A. produces a net present value that is greater than or equal to zero.

B. produces a net present value that is greater than the equivalent IRR.

C. has only one sign reversal.

D. produces a profitability index greater than or equal to zero.

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Answer #1

NPV = -initial investment + PV of future cash flows

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

b) NPV is dollar amount and IRR is return, hence both are not comparable

c) Not a valid reason

d) PI should be greater than 1 for a project to be accepted

hence the correct answer is

A. produces a net present value that is greater than or equal to zero

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