Question

What decision does IRR produce when the NPV is an MDF of the rate of the return and curve crossing the x-axis?

a. Accept the project
b. Reject the project
c. Defer the decision
d. Seek additional funding

Answer 1

When the IRR curve crosses the x-axis, it suggests that the project's NPV is zero at that rate. If the IRR exceeds the cost of capital, the typical decision is to accept the project.

Step-by-step explanation:

When the Internal Rate of Return (IRR) is calculated and the resultant curve crosses the x-axis, it indicates the discount rate where the Net Present Value (NPV) of a project is zero. If the IRR is greater than the required rate of return or the cost of capital, the project is considered to be financially viable and it is generally advised to accept the project. Hence, when the IRR curve crosses the x-axis and assuming it exceeds the hurdle rate, the decision based on the IRR criterion would be to accept the project.