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 discounting the cash inflows at the WACC to find the present value (PV), then compounding this PV to find the IRR.
B)If a project's IRR is greater than the WACC, then its NPV must be negative.
C)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.
D)To find a project's IRR, we must find a discount rate that is equal to the WACC.

Question

Quizplus · Accepted Answer

The correct statement is that 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. This is because the IRR is the rate that sets the NPV of the project to zero, meaning the present value of inflows equals the present value of outflows (or costs). Option A describes the calculation of the regular payback period, not the regular IRR. Option B is incorrect since if the IRR is greater than the WACC, then the project's NPV would be positive. Option D is also incorrect since the IRR is not necessarily equal to the WACC; they may be different depending on the project's risk profile.

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