Which of the Following Statements Is CORRECT? Assume That the Project

question 6

Multiple Choice

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 regular IRR is found by compounding the cash inflows at the cost of capital to find the present value (PV), then discounting the TV to find the IRR.
• B) If a project's IRR is smaller than the cost of capital, then its NPV will be positive.
• C) A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost.
• D) If a project's IRR is positive, then its NPV must also be positive.
• E) A project's regular IRR is found by compounding the initial cost at the cost of capital to find the terminal value (TV), then discounting the TV at the cost of capital.

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Definitions:

Sales Transaction

A financial exchange or transfer of goods, services, or assets between two or more parties.

Good Faith Purchasers

Individuals who buy property without knowledge of any existing claims or liens against it.

Code

A set of rules or principles designed to regulate behavior or to prescribe standards.

Risk of Loss

The risk of loss refers to the potential for an asset to lose value or for an investment to not perform as expected, often shifted from seller to buyer upon completion of certain conditions in a contract.