Question

A project is accepted if,
1) Net present value of the project is positive.
II) IRR is lower than cost of capital.
Modified internal rate of return is greater than cost of capital.
IV) Profitability index is greater than 1.
V) Payback period is lower than the acceptable payback period.
Which of the above statements are correct?​

Answer 1

The correct answer is option (a).

A project is accepted if, Net present value of the project is positive.

Answer 2

Statements I, III, IV, V are correct.

• A project is acceptable when the Net Present Value of a project is positive and its PI is greater than 1.
• When modified IRR is greater, the profits can be reinvested easily.
• A short payback period ensures less risk and early return on investment making the project more attractive.
• When IRR is lower than the cost of capital, there is a greater risk of loss.