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    Question

    A power company appraises a 25-year hydro project with

    IRR of 12% and a payback of 8 years. However, the risk-adjusted discount rate is 15%. Should the project be accepted?
    A Yes, since IRR > 10% Correct Answer Incorrect Answer
    B No, since IRR < discount rate Correct Answer Incorrect Answer
    C Yes, due to long payback Correct Answer Incorrect Answer
    D No, because NPV is negative Correct Answer Incorrect Answer

    Solution

    The IRR must exceed the risk-adjusted discount rate for a project to be viable. Since IRR (12%) is less than 15%, the project would yield a negative NPV.

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