If a firm undertakes a project with ordinary cash flows and estimates that the firm has a positive NPV, then the IRR will be:
A) less than the cost of capital.
B) greater than the cost of capital.
C) greater than the cost of the project.
D) cannot be determined from this information

Question

Quizplus · Accepted Answer

If the NPV of a project is positive, it means that the project is expected to generate more cash inflows than outflows. In this case, the IRR, which is the discount rate that sets the present value of the project's cash inflows equal to its outflows, must be greater than the cost of capital to make the NPV positive. Therefore, the IRR will be greater than the cost of capital.

If a Firm Undertakes a Project with Ordinary Cash Flows