Which of the following statements is correct?
A)If a project with normal cash flows has an IRR greater than the WACC, the project must have a positive NPV.
B)If Project A's IRR exceeds Project B's, then A must have the higher NPV.
C)A project's MIRR can never exceed its IRR.
D)If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.

Question

Quizplus · Accepted Answer

If a project has positive NPV, it means the present value of cash inflows is greater than the present value of cash outflows. And when the IRR is greater than the WACC, it means that the project is generating more return for every dollar invested in it than the cost of capital. Therefore, it will generate more cash inflows than the outflows resulting in a positive NPV. Hence option A is correct.
Option B is not always true as it does not consider the difference in the size of cash flows between the two projects. 
Option C is incorrect as MIRR can exceed IRR under certain circumstances like mutually exclusive projects.
Option D is incorrect as a project with normal cash flows could generate negative NPV if its IRR is less than the WACC.

Which of the Following Statements Is Correct