Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.
A) If a project's IRR is equal to its cost of capital, then under all reasonable conditions, the project's IRR must be negative.
B) If a project's IRR is equal to its cost of capital, then under all reasonable conditions the project's NPV must be zero.
C) There is no necessary relationship between a project's IRR, its cost of capital, and its NPV.
D) When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high.
E) If a project's IRR is equal to its cost of capital, then, under all reasonable conditions, the project's NPV must be negative.

Question

Quizplus · Accepted Answer

When a project's Internal Rate of Return (IRR) is equal to its cost of capital, the Net Present Value (NPV) of the project is zero. This is because the NPV calculation discounts future cash flows at the cost of capital, and when the discount rate (cost of capital) equals the IRR, the present value of inflows equals the initial investment, resulting in an NPV of zero.

Which of the Following Statements Is CORRECT? Assume That All