Assume a project has normal cash flows (i.e. ,the initial cash flow is negative,and all other cash flows are positive).Which of the following statements is most correct?
A) All else equal,a project's IRR increases as the required rate of return declines.
B) All else equal,a project's NPV increases as the required rate of return declines.
C) All else equal,a project's IRR is unaffected by changes in the required rate of return.
D) Answers a and b are both correct.
E) Answers b and c are both correct.

Question

Quizplus · Accepted Answer

B) is correct because as the required rate of return (discount rate) declines, the present value of future cash flows increases, leading to a higher NPV. C) is correct because the IRR is the rate at which the NPV equals zero, and it is a characteristic of the project's cash flows, not dependent on the required rate of return.

Assume a Project Has Normal Cash Flows (I