CFA Practice Question

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CFA Practice Question

If an investment project has an internal rate of return equal to its WACC, the NPV for that project is ______.

A. negative
B. positive
C. zero
Correct Answer: C

User Contributed Comments 7

User Comment
armanaziz How is "interest rate" defined here? Interest rate not necessarily equal a company's Cost of Capital. A company may decide to invest liquid fund in some interest generating bond.. or loan out to some company for fixed interest. That's why the answer is D.
sarath If teh company cost of capital is equal to the internal rate of return of a project then the NPV will be ZERO...
americade Interest Rate here is the market rate that may be either more or less than the company COC.
dipuo Isnt IRR always producing NPV=0?
MattNYC the question should stipulate whether or not the project is independent or mutually exclusive too. I was confused by this one.
MattNYC Nevermind the earlier comment. The IRR is the rate that sets NPV = 0
fabsan WACC=Weighted Average Cost of Capital is your Required Rate of Return. When IRR is equal to RRR, NPV=0.
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