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) A project's regular IRR is found by compounding the cash inflows at the WACC to find the terminal value (TV),then discounting this TV at the WACC.
B) A project's regular IRR is found by discounting the cash inflows at the WACC to find the present value (PV),then compounding this PV to find the IRR.
C) If a project's IRR is greater than the WACC,then its NPV must be negative.
D) To find a project's IRR,we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project's costs.
E) To find a project's IRR,we must find a discount rate that is equal to the WACC.

Question

Quizplus · Accepted Answer

The IRR is the discount rate that makes the NPV of a project's cash flows equal to zero. This can be found by setting the PV of the cash inflows equal to the PV of the project's costs and solving for the discount rate. Therefore, choice D is the correct statement. Choices A, B, and E describe incorrect methods for finding a project's regular IRR. Choice C is also incorrect because a project with an IRR greater than the WACC will have a positive NPV.

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