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Riskless Project: Which Statement Is False?

Suppose a risk less project requires an initial investment of $10 and will generate a one-time cash inflow of $30 two years later. Assuming a risk-free interest rate of 5%, which of the following statements about the project is FALSE?
1. The net present value of the project is positive
2. The IRR is greater then 50 percent
3. The accounting rate of return on the project is positive.
4. The payback period is less than 2 years

Solution Preview

Dear Student:

We assume the initial cash outflow of $10 and a positive cash inflow of $30 in year 2. There are no cash flows in year 1.

Using the financial calculator (HP 10BII), we input the cash flows: CF0=($10) (input as ...

Solution Summary

This solution analyzes the net present value, IRR, accounting rate of return, and payback period of a project, with an initial investment and one cash inflow in year two.

$2.19