Question

1(a). When NPV less than 0, then: Select one:

a. IRR=0

b. IRR greater than required return

c. IRR less than 0

d. IRR less than 0

e. IRR less than required return

1(b). When IRR greater than required return, then: Select one:

a. NPV greater than 0

b. NPV less than required return

c. NPV greater than required return

d. NPV=0

e. NPV less than 0

Answer 1

1(a).

e. IRR less than required return

IRR is the rate at which NPV is zero.Further, NPV and required return has inverse relation.It means if required return is higher then NPV is lower and required return is lower than NPV is higher.At IRR NPV is zero. Negative NPV means higher required return.So it can be said that IRR is lower than required return because at IRR NPV is zero and NPV is less than zero at return higher than IRR.

1b)

a. NPV greater than 0

Consider explanation said above first of all for this question too. At IRR ,NPV is zero.IRR greater than required return ,It means required return is lower than IRR and so at lower discount rate NPV is higher.Hence, NPV is greater than 0. .