Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

A project's NPV is calculated by discounting its cash flows using the cost of capital as the discount rate. Therefore, if the cost of capital declines, the discount rate used to calculate the NPV decreases, which in turn increases the NPV of the project. Therefore, statement A is correct. Statement B is incorrect because the MIRR does change with changes in the cost of capital. Statement C is incorrect because the regular payback does not depend on the cost of capital. Statements D and E are incorrect because both the discounted payback and IRR decrease as the cost of capital declines.

Assume a Project Has Normal Cash Flows