When the cost of capital (or discount rate) increases, the IRR of a project:
Question 24 options:
increases. |
|
decreases. |
|
is unaffected. |
|
cannot be determined without knowing the discount rate. |
|
None of the above. |
IRR is independent of WACC. WACC represents the Required rate of return of the Debtholders and stockholders. While IRR tell the Return that is provided by the Cash Inflows of the project in respect to the Cash Outflow of the project.
Therefore the correct option is Option 3 ; is unaffected.
NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.
When the cost of capital (or discount rate) increases, the IRR of a project: Question 24...
When a company’s discount rate increases, which of the following is true for a project that currently has a net present value of $105,325.69 and an IRR of 15.66%? A. The company’s IRR will increase B. The company’s IRR will decrease C. The company’s net present value will increase D. The company’s net present value will decrease
Which of the following statements about a normal project is correct? You can use the IRR to evaluate the project. The project's IRR cannot be determined without knowing the company's WACC. The payback period considers the time value of money.
Project A has an internal rate of return (IRR) of 15 percent. Project B has an IRR of 14 percent. Both projects have a cost of capital of 12 percent. Which of the following statements is most correct? Question 3 options: Both projects have a positive net present value (NPV). Project A must have a higher NPV than Project B. If the cost of capital were less than 12 percent, Project B would have a higher IRR than Project A....
The cost of capital: Question 19 options: implies that a project will produce a positive net present value only when the rate of return on the project is less than the cost of capital. will decrease as the risk level of a firm increases. depends on how the funds are going to be utilized. is primarily dependent on the source of the funds used in a project.
If an investment project (with conventional cash flows) has IRR equal to the cost of capital, the NPV for that project is: Positive Negative Zero Unable to determine Question 13 (2 points) The following are measures used by firms when making capital budgeting decisions except: Payback period Internal rate of return P/E ratio 1. Net present value
When applying NPV and IRR methods to evaluate potential projects, both require use of a discount rate. What is the discount rate used for NPV and IRR, respectively? A) Cost of equity; cost of capital B) IRR; cost of capital C) Cost of capital; cost of capital D) Cost of capital; IRR
When applying NPV and IRR methods to evaluate potential projects, both require use of a discount rate. What is the discount rate used for NPV and IRR, respectively? Group of answer choices IRR; cost of capital Cost of capital; IRR Cost of capital; cost of capital Cost of equity; cost of capital
True or False question The after-tax cost of debt generally increases when a firm's bond rating decreases. The weighted average cost of capital for a firm is the discount rate which the firm should apply to all of the projects it undertakes. Assigning discount rates to individual projects based on the risk level of each project may cause the firm's overall weighted average cost of capital to either increase or decrease over time. Other things being equal, the weighted average...
1.Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? The project’s IRR increases as the discount rate declines. The project’s NPV increases as the discount rate declines. The project’s MIRR is unaffected by changes in the discount rate. The project’s regular payback increases as the discount rate declines The time value of money is important for three reasons. These three reasons are: Project options,, uncertainty, and variables. Relevancy, stability, and consistency. Project...
Capital Budgeting Decision Criteria: IRR IRR A project's internal rate of return (IRR) is the -Select-compound ratediscount raterisk-free rateCorrect 1 of Item 1 that forces the PV of its inflows to equal its cost. The IRR is an estimate of the project's rate of return, and it is comparable to the -Select-YTMcoupongainCorrect 2 of Item 1 on a bond. The equation for calculating the IRR is: CFt is the expected cash flow in Period t and cash outflows are treated...