Which of the following statements is CORRECT? Assume that the project being cons

Question

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. If a project's IRR is greater than the WACC, then its NPV must be negative. b. A project's regular IRR is found by discounting the cash inflows at the WACC to find the present value (PV), then compounding this PV to find the IRR. c. To find a project's IRR, we must find a discount rate that is equal to the WACC. d. To find a project's IRR, we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project's costs. e. A project's regular IRR is found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting this TV at the WACC.

Explanation / Answer

IRR:

IRR is the Internal Rate of Return which is required for the managers or investors to determine whether the project is worth investing or not. IRR is the rate where project NPV become zero. IRR also provided expected rate of return of the project assuming discount rate which causes present value of the inflow equal to the present value of the project cost.

Answer:

Answer is d.

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