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

question 5

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 a project's NPV, 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.

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Definitions:

Variable Cost

Expenditures that fluctuate according to the degree of production or the volume of goods produced.

Fixed Cost

Costs that remain constant regardless of any change in a firm's activity level, such as lease payments or insurance premiums.

Depreciation

The systematic allocation of the depreciable amount of an asset over its useful life.

Discount Rate

In discounted cash flow analysis, it's the rate used to bring future cash flows down to their present worth.