Which of the following statements is correct? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.
A)The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.
B)If a project's NPV is greater than zero, then its IRR must be less than the WACC.
C)If a project's NPV is greater than zero, then its IRR must be less than zero.
D)The NPVs of relatively risky projects should be found using relatively low WACCs.

Question

Quizplus · Accepted Answer

The correct statement is that the higher the WACC (Weighted Average Cost of Capital) used to calculate the NPV (Net Present Value), the lower the calculated NPV will be. This is because a higher WACC reflects a higher opportunity cost of investment, which in turn reduces the relative attractiveness of the project's cash flows. The other statements are not correct. B is incorrect because the IRR (Internal Rate of Return) and WACC are not necessarily directly related, and a positive NPV only implies that the project's cash flows exceed its costs at the given discount rate. C is incorrect because a positive NPV implies that the project's IRR is greater than the discount rate, not less than zero. D is incorrect because higher risks require higher WACCs to reflect the cost of capital that investors demand for taking on more uncertain cash flows.

Which of the Following Statements Is Correct? Assume That the Project