Which of the following statements is correct?
A) The NPV and IRR methods will only sometimes agree on whether a project enhances or harms shareholder wealth.
B) If a project has a positive NPV, its IRR will always be less than the cost of capital.
C) If a project has a negative NPV, its IRR will always be less than the cost of capital.
D) There is always a conflict between NPV and IRR in the case of mutually exclusive projects.

Question

Quizplus · Accepted Answer

C) If a project has a negative NPV, its IRR will always be less than the cost of capital. This is because the IRR is the discount rate that makes the NPV of all cash flows from a particular project equal to zero. If the NPV is negative, it means the project's returns are less than the cost of capital, hence the IRR must be less than the cost of capital.

Which of the Following Statements Is Correct