Assume a Project Has Normal Cash Flows (I

question 115

Multiple Choice

Assume a project has normal cash flows (i.e. ,the 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:

Stand-alone Risk

The risk associated with a particular asset or investment when it is not part of a portfolio, considering only its own variability of returns.

Risk Aversion

The tendency of investors to prefer lower risk in investment choices, reflecting a preference for certainty over uncertainty.

Lower-risk Securities

Investment products that are considered to have a lower potential for loss or volatility, such as government bonds or CDs.

Tolerance for Risk

An individual's or entity's capacity to endure the uncertainty and potential loss in investment values.