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. 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.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. If a project's IRR is greater than the WACC, then its NPV must be negative. 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. To find a project's IRR, we must find a discount rate that is equal to the WACC.

Answer 1

Answer:

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

Explanation:

The internal rate of return, will be the rate at which the net present value of a project is zero.

net present value = present value fo the cash inflow - investment

using the IRR on the cash inflow we have a present value equal to the investment made, which makes the net present value equal to zero.

Therefore, the IRR is the maximun rate the project can yield