Which of the Following Statements Is CORRECT? Assume That All

question 32

Multiple Choice

Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.

• A) If a project's IRR is equal to its WACC,then,under all reasonable conditions,the project's NPV must be negative.
• B) If a project's IRR is equal to its WACC,then under all reasonable conditions,the project's IRR must be negative.
• C) If a project's IRR is equal to its WACC,then under all reasonable conditions the project's NPV must be zero.
• D) There is no necessary relationship between a project's IRR,its WACC,and its NPV.
• E) When evaluating mutually exclusive projects,those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high.

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Definitions:

Period Costs

Costs that are expensed in the period in which they are incurred, rather than being capitalized or included in the cost of goods sold, such as selling, general, and administrative expenses.

Direct Materials

Raw materials that can be directly associated with the production of goods, clearly identifiable and allocable to specific products or jobs.

Factory Overhead

The total of all indirect costs associated with manufacturing, including indirect labor, materials, and expenses not directly tied to the production of goods.

Manufacturing Costs

Expenses directly related to the production of goods, including direct labor, direct materials, and overhead costs.