Economics · Investment Appraisal
A company evaluated a proposed project using the following appraisal measures: Internal Rate of Return (IRR) = 14%, Return on Capital Employed (ROCE) = 20%, Payback Period = 4 years, and Cost of Capital = 10%. Under the discounted cash flow principles to maximize shareholder wealth, which statement is true?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The project is not worthwhile because the payback period is less than five years.
- 2The project is not worthwhile because the IRR is less than the ROCE.
- 3The project is worthwhile because the IRR is greater than the cost of capital.✓
- 4The project is worthwhile because the IRR is a positive value.
Correct answer
The project is worthwhile because the IRR is greater than the cost of capital.
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