Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.
A) If Project A has a higher IRR than Project B,then Project A must have the lower NPV.
B) If Project A has a higher IRR than Project B,then Project A must also have a higher NPV.
C) The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC.
D) The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
E) If a project has normal cash flows and its IRR exceeds its WACC,then the project's NPV must be positive.

Question

Quizplus · Accepted Answer

When a project has normal cash flows and its IRR exceeds its WACC, it means that the project is generating a rate of return higher than what the company is paying to finance the project. This indicates that the project is lucrative and that the investment is economically viable. Therefore, such a project's NPV must be positive because the positive cash flows generated by the project are discounted at a rate (WACC) lower than their rate of return (IRR). Hence, Option E is the correct statement.

Which of the Following Statements Is CORRECT? Assume That the Project