Question

In: Finance

Which of the following statements is correct? Group of answer choices If a project with normal...

Which of the following statements is correct? Group of answer choices If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV. A project’s MIRR can never exceed its IRR. If Project A’s IRR exceeds Project B’s, then A must have the higher NPV. If the NPV is negative, the IRR must also be negative. If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.

Expert Solution

Option A:

If IRR > WACC, NPV is must be +ve. Hence statement correct.

Option B:

IRR is the Rate at which PV of Cash Inflows are equal to PV of Cash Outflows.

IRR = Rate at which least +ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in disc rate ] * 1%

If IRR > Cost of Capital - Project can be accepted
IRR = Cost of Capital - Indifferebce Point - Project will be accepted / Rejected
IRR < Cost of Capital - Project will be erejected

Modified IRR:

It is similar to IRR. In IRR, we are assumed that intermediary cashflows are reinvested at IRR only. In MIRR, we assume that Intermediary CFs are reinvested at
Reinvestment Rate rather than at IRR.

If Reinvestment rate > IRR, MIRR will be greater than IRR.

Hence statement is wrong.

Option C:

IRR and NPV are two different concepts, NPV is depended on cost of capital.

Hence the statement is wrong.

Option D:

If NPV <0, IRR will be less than Cost of capital. Hence the statement is wrong.

Option E:

If NPV <0, IRR will be less than Cost of capital. Hence the statement is wrong.

Pls do rate, if the answer is correct and comment, if any further assistance is required.

jeff jeffy answered 2 years ago

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