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• C) The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.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:

Aggregate Supply

The aggregate amount of products and services that businesses intend to offer for sale in the market within a given timeframe.

Economic Fluctuations

Variations in the level of economic activity in an economy over a period of time, including phases of expansion and contraction.

Business Cycle

The fluctuations in economic activity that an economy experiences over a period of time, characterized by periods of expansion (growth) and contraction (recession).

Recessions

Intervals of provisional economic contraction, during which commerce and industry slow down, often indicated by a dip in GDP across two sequential quarters.