Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

This statement is known as the IRR rule. If the IRR of a project is greater than the WACC, then the project must have a positive NPV. If the IRR is less than the WACC, then the project must have a negative NPV. Therefore, statement E is correct. Statement A is incorrect because the relative sizes of the NPVs depend on the scale of the projects and the specific cash flows. Statement B is incorrect because the MIRR can exceed the IRR if there are multiple negative cash flows, and it can also be lower than the IRR if there are large positive cash flows later in the project. Statement C is incorrect because it is possible for a project to have negative NPV even if the IRR is less than the WACC if the scale of the project is large or if the cash flows are not evenly distributed. Statement D is incorrect because the NPV and IRR can both be negative if the scale of the project is large and the cash flows are heavily weighted towards the later years.

Which of the Following Statements Is CORRECT