Final answer:
The project should be accepted because the internal rate of return of 13.1 percent is higher than the discount rate of 12 percent, indicating that the investment's expected return exceeds the minimum required return.
Step-by-step explanation:
The student's question relates to whether to accept or reject an investment based on its internal rate of return (IRR) compared to the discount rate. The IRR of 13.1 percent is higher than the discount rate of 12 percent. Since the IRR exceeds the discount rate, it means that the investment is expected to generate a return greater than the cost of capital, and hence, accepting the project would theoretically provide a net positive value to the company. Therefore, the correct answer is:
Option a) Accept
When dealing with investment decisions, the internal rate of return is a critical factor. It represents the rate of growth a project is expected to generate. On the other hand, the discount rate is used as a hurdle rate or the minimum return required from an investment. If the IRR is above the discount rate, it generally suggests that the investment is worth pursuing, whereas if it is below, the investment may not meet the required threshold for consideration.