"The management of XYZ Corporation is considering investing $ 10,000 in project X that has an internal rate of return of 12%.Which of the following statements are true regarding the firm’s recommended course of action?

a. Reject Project X if the cost of capital to finance the project is over 12%.

b. Accept Project X if the cost of capital to finance the project is over 12%.

c. Reject Project X if the cost of capital to finance the project is Less than 12%.

d. None of the above

Answer :- The statement that is true regarding firm's recommended course of action is :-

( a ) Reject project X if the cost of capital to finance the project is over 12% .

Explanation :-

The management is considering investing in project X which has an internal rate of return ( IRR ) of 12 % .

The general rule of IRR to accept or reject a project is that a project can be accepted if IRR is greater than cost of capital and a project is rejected if cost of capital is greater than IRR .

So, option ( a ) is true regarding firm's recommended course of action as the project X to be rejected when cost of capital is greater than 12% IRR .

Explanation for rejection of other points :-

Option ( b ) is not correct because the project X is to be rejected when cost of capital is greater than 12 % .

Option ( c ) is wrong because project X is to be accepted if cost of capital is less than 12% IRR .

So, the right option is option ( a ) .