Question

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Group of answer choices

A) If a project's IRR is positive, then its NPV must also be positive.

B) A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost.

C) If a project's IRR is smaller than the WACC, then its NPV will be positive.

D) A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV), then discounting the TV to find the IRR.

Answer 1

Answer - B

Explanation

IRR is the rate where PV of cash inflows equals the PV of cash outflows

A - If a project's IRR is positive, NPV may or may not be positive. NPV depends on the discounting rate we are taking.

B - Correct

C - If a project's IRR is smaller than WACC, then NPV will be Negative

D - IRR is found by equating the sum of the present value of future cash inflow less the initial investment to zero.