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.

 

a.     A project’s NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV.

b.     The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.

c.     If a project’s NPV is greater than zero, then its IRR must be less than the WACC.

d.     If a project’s NPV is greater than zero, then its IRR must be less than zero.

e.     The NPVs of relatively risky projects should be found using relatively low WACCs.


  • avatar
    mathquestions12
    18 Aug 2012 04:31:54 GMT

    Correct answer is (b) The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.

    • avatar
      mathquestions12
      18 Aug 2012 04:31:52 GMT

      Correct answer is (b) The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.


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