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

question 28

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) If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
• B) The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC.
• C) The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
• D) If a project has normal cash flows and its IRR exceeds its WACC, then the project's NPV must be positive.
• E) If Project A has a higher IRR than Project B, then Project A must have the lower NPV.

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Definitions:

Market Equilibrium

A situation in a market where the quantity of a product demanded by consumers equals the quantity supplied by producers.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or resource, typically set below the equilibrium price.

Shortage

A situation in which the demand for a product or service exceeds the supply available at a particular price.

Non-price Factors

Variables other than price that affect the demand and supply of goods and services, such as consumer preferences, income, and technology.