Which of the following statements is CORRECT? A.The NPV method was once the favo

Question

Which of the following statements is CORRECT?

A.The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability.

B. If the cost of capital is reduced, this reduces a project's NPV.

C. The NPV method is regarded by most academics as being the best indicator of a project's profitability, hence academics recommend that firms use only this one method.

D. A project's NPV depends on the total amount of cash flows the project produces, but because the cash flows are discounted at the WACC, it does not matter if the cash flows occur early or late in the project's life.

E. The NPV and IRR methods may give different recommendations regarding which of two mutually exclusive projects should be accepted, but they always give the same recommendation regarding the acceptability of a normal, independent project.

Explanation / Answer

Statement e is correct. The others are all false. If you draw an NPV profile for one project, you will see that if the WACC is less than the IRR, the NPV will be positive.

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