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

question 87

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 generally found by compounding the cash inflows at the WACC to find the terminal value (TV),then discounting the TV at the IRR to find its PV.
• B) The higher the WACC used to calculate the NPV,the lower the calculated NPV will be.
• C) If a project's NPV is greater 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 NPVs of relatively risky projects should be found using relatively low WACCs.

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Definitions:

Depletion Expense

The allocation of the cost of natural resources over their productive life.

Residual Value

The estimated amount that an asset will realize upon its disposal at the end of its useful life, after deducting any potential costs of disposal.

Extracted Ore

Raw minerals taken from the ground, which may be processed to extract valuable metals or other resources.

Loss On Disposal

The financial loss incurred when disposing of an asset for less than its book value or carrying amount.