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

question 71

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 NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV),then discounting the TV at the WACC.
• B) The lower the WACC used to calculate it,the lower the calculated NPV will be.
• C) If a project's NPV is less 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 NPV of a relatively low-risk project should be found using a relatively high WACC.

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Definitions:

Cyclically Balanced Budget

A cyclically balanced budget is a fiscal policy approach where government budgets are planned to balance over the economic cycle, allowing for surpluses in boom years and deficits in recession years.

Government Expenditures

The total amount spent by the government for its various services, projects, and functions within a specified period.

Fiscal Policy

Government policies related to taxes and spending with the goal of influencing the economy's growth, inflation, and employment levels.

Deflation

A decrease in the general price level of goods and services, leading to an increase in the purchasing power of money.