Assume a project has conventional cash flows. All else equal, which of the following statements is...
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Assume a project has conventional cash flows. All else equal, which of the following statements is CORRECT?
a. The project's MIRR is unaffected by changes in the WACC.
b. The project's NPV increases as the WACC declines.
c. The project's IRR increases as the WACC declines.
d. The project's discounted payback increases as the WACC declines.
e. The project's regular payback increases as the WACC declines.
Homework Answers
| b. |
The project's NPV increases as the WACC declines. |
NPV is calculated by subtracting Initial investment from present value of cash inflows. The present value of cash inflows is calculated discounting the future cash inflows using WACC. As the WACC declines, present value of cash flows will increase which in turn increases NPV.
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Assume a project has conventional cash flows. All else equal,
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