You Are Considering a Project with the Following Data: Internal

question 84

Multiple Choice

You are considering a project with the following data: Internal rate of return: 8.7%
Profitability ratio: 0.98
Net present value: -£393
Payback period: 2.44 years
Required return: 9.5%
Which one of the following is correct given this information?

• A)The discount rate used in computing the net present value must have been less than 8.7%.
• B)The discounted payback period will have to be less than 2.44 years.
• C)The discount rate used to compute the profitability ratio was equal to the internal rate of return.
• D)This project should be accepted based on the profitability ratio.
• E)This project should be rejected based on the internal rate of return.

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Definitions:

Economic Profit

The difference between total revenue and total cost, including both explicit and implicit costs, representing the additional benefit over the next best alternative.

Competitive Price-searcher Market

A market structure where firms have some control over the pricing of their products due to differentiation, but still face significant competition.

Market Demand

The overall volume of a good or service that consumers in a market are ready and able to buy across a range of prices.