Use the information below to answer the following question(s).Wet Water Company drills residential and commercial wells.The company is in the process of analyzing the purchase of a new drill.Information on the proposal is provided below:
Note: Other than the initial investment, cash flows are end of period.The working capital is returned at the end of the investment period.
-In NPV analysis, if the IRR exceeds the RRR
A)the project should be rejected.
B)the NPV will be negative (when discounted at the IR
R).
C)the NPV is positive when project cash flows are discounted at the IRR.
D)the NPV is positive when project cash flows are discounted at the RRR.
E)the NPV is negative when project cash flows are discounted at the RRR.

Question

Use the information below to answer the following question(s).Wet Water Company drills residential and commercial wells.The company is in the process of analyzing the purchase of a new drill.Information on the proposal is provided below:
  Note: Other than the initial investment, cash flows are end of period.The working capital is returned at the end of the investment period.
-In NPV analysis, if the IRR exceeds the RRR
A)the project should be rejected. 
B)the NPV will be negative (when discounted at the IR
R). 
C)the NPV is positive when project cash flows are discounted at the IRR. 
D)the NPV is positive when project cash flows are discounted at the RRR. 
E)the NPV is negative when project cash flows are discounted at the RRR.

Quizplus · Accepted Answer

If the IRR exceeds the RRR, the NPV is positive when project cash flows are discounted at the RRR, indicating the project is expected to generate more value than the cost of capital.

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