Question

Which of the following statements is CORRECT? Assume that the project being considered has normal cash...

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.

Homework Answers

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.

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