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A project is acceptable by the rate of return criterion if its internal rate of return is

  • A.equal to the inflation rate
  • B.at least the minimum attractive rate of return
  • C.at least zero
  • D.less than the minimum attractive rate of return

Answer: B

Correct answer: at least the minimum attractive rate of return

The minimum attractive rate is the return the firm could get on its next best use of the money, so a project earning at least that much is worth doing and one earning less is not. Comparing the internal rate with zero or with inflation ignores the opportunity cost of the capital entirely.

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