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

question 95

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) The lower the cost of capital used to calculate a project's NPV, the lower the calculated NPV will be.
• B) If a project's NPV is less than zero, then its IRR must be less than the cost of capital.
• C) If a project's NPV is greater than zero, then its IRR must be less than zero.
• D) The NPV of a relatively low-risk project should be found using a relatively high cost of capital.
• E) 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 cost of capital.

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Definitions:

Invested

Invested pertains to the allocation of resources, usually money, into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit.

Interest Rate

The percentage at which interest is charged on a loan or paid on savings.

Guaranteed Investment

An investment product that promises a certain return or protects the principal amount.

Matures

Refers to the date on which a financial obligation must be repaid or the final payment is due, typically used in the context of bonds or loans.