Which Statement About a Project's IRR Is Correct? Assume That

question 12

Multiple Choice

Which statement about a project's IRR is correct? Assume that all projects being considered have normal cash flows and are equally risky.

• A)If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.
• B)If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's IRR must be negative.
• C)If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be zero.
• D)There is no necessary relationship between a project's IRR, its WACC, and its NPV.

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Definitions:

Loss-Minimizing Level

The production level at which a firm minimizes its losses in the short run when it cannot cover total costs, but can cover variable costs.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Variable Cost

Costs that change in proportion to the good or service that a business produces.

Profit

The financial gain obtained when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity.