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

question 57

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)The lower the WACC used to calculate it, the lower the calculated NPV will be.
• B)If a project's NPV is less than zero, then its IRR must be less than the WACC.
• C)If a project's NPV is greater than zero, then its IRR must be less than zero.
• D)The NPV of a relatively low risk project should be found using a relatively high WACC.

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Definitions:

Disposable Income

The financial stipend available to households for spending and saving endeavors after income taxes are considered.

Autonomous Consumption

The level of consumption expenditure that occurs when income levels are zero, reflecting the basic level of consumption that does not depend on current income.

APS

An acronym for Average Propensity to Save, which is the ratio of savings to the total net disposable income.

Total Saving

The sum of personal, business, and government savings within an economy.