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:

Unpaid Dividends

Dividends declared by a company's board of directors that have not yet been paid out to shareholders.

Dividend Yield

An indicator demonstrating the yearly dividends paid by a company compared to its stock price.

Constant Growth Stock

A stock assumed to pay dividends that grow at a constant rate indefinitely, making it possible to use dividend discount models for valuation.

Warrants

Financial derivatives that give the right, but not the obligation, to buy or sell a security at a specific price before a certain date.