Which of the following statements is FALSE?
A)In general,the difference between the cost of capital and the IRR is the maximum amount of estimation error in the cost of capital estimate that can exist without altering the original decision.
B)The IRR can provide information on how sensitive your analysis is to errors in the estimate of your cost of capital.
C)If you are unsure of your cost of capital estimate,it is important to determine how sensitive your analysis is to errors in this estimate.
D)If the cost of capital estimate is more than the IRR,the NPV will be positive.

Question

Quizplus · Accepted Answer

The statement that is false is D. If the cost of capital estimate is more than the IRR, the NPV will be negative, not positive. This is because the NPV represents the difference between the present value of cash inflows and the present value of cash outflows, discounted at the cost of capital. If the cost of capital is higher than the IRR, the discount rate applied to cash flows will be greater than the rate at which the cash flows are generated, resulting in a negative NPV.

Which of the Following Statements Is FALSE