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Question
Two firms, Tangerine Inc. and Cyan Inc. analyzed the same capital budgeting project. Tangerine Inc. determined that the project's internal rate of return (IRR) is 9 percent. Cyan Inc. used the net present value (NPV) method to evaluate the project and determined that it is not acceptable. Given this information, which of the following statements is correct?
a. The net present value of the project must be positive for both the firms.
b. If it had computed the project's IRR, Cyan would have found the IRR to be less than 9 percent.
c. Tangerine's chief financial officer (CFO) should use the traditional payback period method to evaluate the project.
d. Tangerine Inc. should use a discount rate of more than 9 percent for capital budgeting analysis by the net present value (NPV) method.
e. Cyan Inc.'s required rate of return is greater than 9 percent.
Answer
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