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

question 84

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 regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV), then discounting the TV at the WACC.
• B)A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV), then discounting to find the IRR.
• C)If a project's IRR is smaller than the WACC, then its NPV will be positive.
• D)A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost.

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Definitions:

Floating-rate Debt

A form of debt where the interest rate varies over time based on a benchmark interest rate or index.

Market Rate

The current interest rate or cost of borrowing in the market, applicable to loans, deposits, and securities.

Bond Interest Expense

The cost incurred by an issuer of bonds due to interest payments made to bondholders, typically recognized as an expense in the income statement.

Effective Yield

A measure of the actual rate of return earned on a bond or fixed-income investment, taking into account the effect of compounding interest.