Arizona State University (ASU) ACC241 Uses of Accounting Information II Exam 3 Practice

Question: 1 / 400

True or False: If the internal rate of return is less than the required rate of return, the project will be accepted.

True

False

The statement is false because if the internal rate of return (IRR) is less than the required rate of return, the project should not be accepted. The IRR is the rate of return at which the net present value (NPV) of a project's cash flows equals zero. When the IRR is below the required rate of return, it indicates that the project does not generate sufficient returns to cover the opportunity cost of capital. As a result, accepting projects with an IRR lower than the required rate could lead to a decrease in overall shareholder value, as those funds might earn a higher return elsewhere. Thus, the correct choice emphasizes that projects should only be accepted when their IRR meets or exceeds the required rate of return.

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Only in special cases

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