If the internal rate of return for a capital investment project is less than the necessary rate of return, the project will be approved. This assertion is false.
The project with the highest net present value will always be preferred when choosing a capital investment project among the three choices.
When the discount rate is the same as the internal rate of return, the original investment is equaled to the total present value of all future cash flows to get the internal rate of return. Therefore, the project should be approved if the internal rate of return exceeds the necessary rate of return.
The greater the predicted IRR on a project, the larger the net cash flows to the corporation as long as the IRR exceeds the cost of capital. The rule states that the optimal course of action is to abandon the project or investment if the IRR is higher than the cost of capital.
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