Which of the following statements is true?
(I) If an investment project has an internal rate of return (IRR) equal to the cost of capital,the Net Present Value (NPV) for that project must be greater than 0
(II) If [CF₁ + CF₂ + … + CF_k] > CF₀,then the IRR will always be greater than 0.(CF_k = net cash flow at end of year k)

Question

Quizplus · Accepted Answer

Statement (I) is not necessarily true. If the IRR is equal to the cost of capital, the NPV can be equal to zero. Statement (II) is true. This is because if the sum of discounted cash flows from the project is greater than the initial investment, then by definition the IRR must be greater than zero.

Which of the Following Statements Is True