Question

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.

Group of answer choices

The lower the cost of capital used to calculate a project's NPV, the lower the calculated NPV will be.

If a project's NPV is less than zero, then its IRR must be less than the cost of capital.

If a project's NPV is greater than zero, then its IRR must be less than zero.

The NPV of a relatively low-risk project should be found using a relatively high cost of capital.

Answer 1

Option B is correct

If a project's NPV is less than zero, then its IRR must be less than the cost of capital. The statement is correct. On the other hand, if a project's NPV is greater than zero, then its IRR must be greater than the cost of capital.

Option A is incorrect because The lower the cost of capital used to calculate a project's NPV, the higher the calculated NPV will be.

Option C is incorrect because If a project's NPV is greater than zero, then its IRR must be more than zero.

Option D is incorrect because The NPV of a relatively low-risk project should be found using a relatively low cost of capital.