- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 5. Capital Investments and Capital Allocation
- Subject 2. Capital Allocation
CFA Practice Question
A project has a conventional cash flow pattern and positive NPV. If the cash flows for the project, initial outlay, and future after-tax cash flows all double, then the IRR would ______
A. increase and NPV would increase.
B. stay the same and NPV would increase.
C. stay the same and NPV would stay the same.
Explanation: The IRR would stay the same because the return on each dollar invested remains the same. The NPV would increase since the difference between the total present value of the future cash flows and the initial outlay also doubles.
User Contributed Comments 4
| User | Comment |
|---|---|
| endurance | if any doubts, just type in fictional amounts in the CF on your calculator and check for IRR and NPV |
| sagrr | NPV accounts for the magnitude of the project, IRR doesnt |
| truss88 | This assumes NPV>0 |
| heshamessa | one of the best questions |