Assume a Project Has Normal Cash Flows (I

question 28

Multiple Choice

Assume a project has normal cash flows (i.e., initial cash flow is negative, and all other cash flows are positive) . Which of the following statements is most correct?

• A)All else equal, a project's IRR increases as the required rate of return declines.
• B)All else equal, a project's NPV increases as the required rate of return declines.
• C)All else equal, a project's IRR is unaffected by changes in the required rate of return.
• D)Answers a and b are both correct.
• E)Answers b and c are both correct.

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Definitions:

Interest Rates

The expense incurred by a borrower, quantified as a percentage of the principal, for accessing a lender's assets.

Yield

The income return on an investment, such as the interest or dividends received, expressed as a percentage of the investment's cost.

Coupon Rate

An annual interest percentage a bond generates, reflected against its original price.

Monetary Policy

Economic strategy chosen by a government or central bank to control the supply of money, influencing interest rates and overall economic activity.