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

Question

Quizplus · Accepted Answer

This statement is one of the fundamental concepts in finance - if a project's IRR is greater than its cost of capital (or required rate of return), then its NPV is positive. This is because the IRR represents the discount rate that sets the present value of the project's cash inflows equal to the present value of its cash outflows, so if the IRR is greater than the cost of capital, then the project is generating more cash inflows than it needs to meet its required return. Therefore, the project has a positive NPV, which means that it is creating value for the firm.

Which of the Following Statements Is CORRECT