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

question 106

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 discounting the cash inflows at the cost of capital to find the present value (PV), then compounding this PV to find the IRR.
• B) If a project's IRR is greater than the WACC, then its NPV must be negative.
• C) To find a project's IRR, we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project's costs.
• D) To find a project's IRR, we must find a discount rate that is equal to the cost of capital.
• E) A project's regular IRR is found by compounding the cash inflows at the cost of capital to find the terminal value (TV), then discounting this TV at the cost of capital.

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Definitions:

Profit

The financial gain achieved when the revenue from business activities exceeds the expenses, costs, and taxes needed to sustain the activity.

Marginal Cost

The cost added by producing one additional unit of a product or service.

Output

The aggregate output of products or services generated by a corporation, sector, or economic system.

Price-Taker Market

A market in which sellers have no ability to influence the price of the goods or services they sell; price is determined by supply and demand.