Al E. Butt (Fisheries) Ltd has recently undertaken net present value analysis of a new trawler. The trawler would require a single cash outflow immediately and this would be followed by positive cash inflows over its useful life. The discount rate used, based on the cost of capital, was 12% and the net present value of the investment turned out to be negative £55,700. A colleague claims that this finding means that, if the internal rate of return method had been used to undertake the analysis, it would indicate that: 1. The internal rate of return of the project is less than 12%. 2. The investment opportunity should not go ahead. Are the above statements true or false?

Al E. Butt (Fisheries) Ltd has recently undertaken net present value analysis of a new trawler. The trawler would require a single cash outflow immediately and this would be followed by positive cash inflows over its useful life. The discount rate used, based on the cost of capital, was 12% and the net present value of the investment turned out to be negative £55,700. A colleague claims that this finding means that, if the internal rate of return method had been used to undertake the analysis, it would indicate that: 1. The internal rate of return of the project is less than 12%. 2. The investment opportunity should not go ahead. Are the above statements true or false?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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