Assume a project has normal cash flows.All else equal,which of the following statements is CORRECT?
A) A project's IRR increases as the WACC declines.
B) A project's NPV increases as the WACC declines.
C) A project's MIRR is unaffected by changes in the WACC.
D) A project's regular payback increases as the WACC declines.
E) A project's discounted payback increases as the WACC declines.

Question

Quizplus · Accepted Answer

As the WACC declines, the discount rate used to calculate the present value of future cash flows also declines, which leads to a higher present value of cash inflows and a lower present value of cash outflows. This results in a higher net present value (NPV) for the project, indicating that it is more profitable. Therefore, statement B is correct. Statements A, C, D, and E are incorrect as they are either false or unrelated to the impact of WACC on cash flows.

Assume a Project Has Normal Cash Flows