Question

Internal rates of return for three alternative investment projects follow: Project X, 14%; Project Y, 10%; and Project Z, 16%. If the company requires a 12% rate of return on its investments, it would accept all three projects on the basis of internal rate of return.

True or False?

Answer 1

It is false that the company would accept all three investment projects based on their IRR; only projects with an IRR above the company's required rate of return would be accepted, which excludes Project Y. Therefore, the given statement is false

Step-by-step explanation:

False. When deciding whether to accept investment projects based on the internal rate of return (IRR), a company compares the IRR with its required rate of return or hurdle rate. In this case, the company requires a 12% return. Project X has an IRR of 14%, Project Y has an IRR of 10%, and Project Z has an IRR of 16%. A company would only accept projects that have an IRR higher than its required rate of return. As such, the company would accept Project X and Project Z but reject Project Y because its IRR is below the required 12%. Therefore, it is false to state that the company would accept all three projects based on their IRR.