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

question 42

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) If Project A has a higher IRR than Project B,then Project A must have the lower NPV.
• B) If Project A has a higher IRR than Project B,then Project A must also have a higher NPV.
• C) The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC.
• D) The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
• E) If a project has normal cash flows and its IRR exceeds its WACC,then the project's NPV must be positive.

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Definitions:

Net Income

Net income is the total profit of a company after all expenses, taxes, and costs have been deducted from total revenue, indicating the company's financial performance over a specified period.

Liabilities

Financial obligations that a company owes to outside parties, which can include loans, accounts payable, and mortgages.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the owner's claim on the business assets.

Owner Drawings

Owner Drawings are withdrawals of business assets by the owner(s) for personal use, affecting the owner's equity account but not considered business expenses.