increase in the firm's WACC will decrease projects' NPVs, which could change the accept/reject decision for any potential project.However, such a change would have no impact on projects' IRRs.Therefore, the accept/reject decision under the IRR method is independent of the cost of capital.

Question

Quizplus · Accepted Answer

The IRR method is not independent of the cost of capital because the decision to accept or reject a project using IRR depends on comparing the IRR to the firm's WACC. An increase in WACC can affect the accept/reject decision if the IRR is close to the WACC.

Increase in the Firm's WACC Will Decrease Projects' NPVs, Which