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Discussion

For a single project, the rate of return and present worth criteria

  • A.agree only when the rate is above 10 per cent
  • B.cannot both be applied to the same cash flow
  • C.always agree on acceptance or rejection
  • D.sometimes disagree on acceptance

Answer: C

Correct answer: always agree on acceptance or rejection

For a conventional cash flow the present worth falls steadily as the discount rate rises and crosses zero exactly once, at the internal rate of return. So a positive present worth at the required rate and an internal rate above that required rate are two statements of the same fact. They can disagree only when choosing between alternatives, not when accepting one.

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