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

question 69

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

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Definitions:

Market Return

Market return is the profit or loss generated from investing in the stock market, typically measured as the percentage change in investment value over a specific period.

Preemptive Rights

The rights that allow existing shareholders to purchase additional shares before new shares are offered to the public, to maintain their proportionate ownership in the company.

Proportionate Ownership

The percentage of ownership in a company or property, directly correlating to the amount of shares or units an individual or entity possesses.

Efficient Market Hypothesis

A financial theory stating that asset prices fully reflect all available information, making it impossible to consistently achieve higher returns than the overall market.