Question

Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all other cash flows are positive). Which of the following statements is most correct?

Question 2 options:

	All else equal, a project's IRR increases as the cost of capital declines.
	All else equal, a project's NPV increases as the cost of capital declines.
	All else equal, a project's MIRR is unaffected by changes in the cost of capital.
	Answers a and b are correct.
	Answers b and c are correct.

Answer 1

The cost of the capital of a project will be decreasing, it will mean that net present value of the project will be increasing because of the capital decrease will mean that the overall cash outflow will be decreasing hence it will mean that would be a higher net present value of the project.

Statement about change in internal rate of return and MIRR are incorrect.

correct answer will be option (b) all else equal, the project net present value will increase as the cost of capital declines.