Question

The net present value of a project is zero. The minimum desired rate of return used to obtain the net present value is 8%. Which of the following statements is TRUE? A. The project is desirable if the minimum desired rate of return is 6%. B. The project is undesirable if the minimum desired rate of return is 6%. C. The project is desirable if the minimum desired rate of return is 6% or 10%. D. The project is desirable if the minimum desired rate of return is 10%.

Answer 1

A. The project is desirable if the minimum desired rate of return is 6%.

Step-by-step explanation:

If the NPV of a project is zero at an 8% rate it means it yields 8%

Remember:

PV = net cash flow at present value using a given rate - investment

So if PV = 0 then

net cash flow at given the rate = investment

Which makes the business profitable at that rate.

So if the desired minimum is 6% the project yields above that. Making it profitable and therefore, desirable