Which of the following statements is CORRECT? Assume that the project being cons

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.

a. A project's NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV. b. If a project's NPV is greater than zero, then its IRR must be less than the WACC. c. If a project's NPV is greater than zero, then its IRR must be less than zero. d. The NPVs of relatively risky projects should be found using relatively low WACCs. e. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.

Explanation / Answer

Dear student.... thank you for using...correct answer is e. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.....

Since higher the rate would be lower would be the present value factor..... which means present value of cash infows(Cash infows*PVF) would be low.... Thus NPV would be low as Present value of cash inflows is less

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