Question

As per DCF analysis, a project report is acceptable, if

• A. Discounting rate $>$ IRR
• B. Discounting rate $<$ IRR
• C. Discounting rate = IRR
• D. There exists no relation between the Discounting rate and IRR

Hint:

A project is financially viable in DCF analysis if the IRR exceeds the discount rate, ensuring a positive NPV.

Answer 1

The Correct Option is B

In Discounted Cash Flow (DCF) analysis, the Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of all cash flows from a project is zero. A project is considered financially acceptable if the IRR is greater than the discount rate because it implies that the project’s returns exceed the cost of capital. \[ \text{Accept project if } \text{IRR}>\text{Discount Rate} \] Thus, a project is acceptable when: \[ \text{Discounting rate}<\text{IRR} \]