Question

Tangarine Company is considering a project with an internal rate of return of 12%. Tangarine requires a minimum rate of return of 10%. The net present value of the project is: a.equal to zero. b.infinite. c.negative. d.positive. e.None of these choices are correct.

Answer 1

Answer:

The correct option is D

Positive NPV

Explanation:

The internal rate of return is the discount rate that equates the present value of cash inflow to the present value of cash inflows.

It is the maximum cost of capital that can be used to discount a project without causing harm to the investors. In other words, it is the cost of capital that produces an NPV of Zero.

It therefore means that any cost of capital that is less than the IRR would produce a positive NPV and vice and versa.

and  vice versa

Finally, if the IRR is 12% a cost of capital of 10% would produce a positive NPV