CFA Practice Question

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CFA Practice Question

Company A is considering a capital investment project. The appropriate discount rate for the project is WACC = 5%. The project has the following NPV and IRR: NPV = $50,000, IRR = 6.5%.

Which of the following statements is true?

A. The project should be accepted since IRR > WACC.
B. The project should be accepted since NPV > 0.
C. Both of the above are true.
Correct Answer: C

According to the NPV Rule, all projects with NPV > 0 should be accepted. According to the IRR Rule, all projects with IRR > WACC (or the appropriate discount rate) should be accepted. Company A's project meets both of these standards and should therefore be accepted.

User Contributed Comments 2

User Comment
fedha good question. Helps get the concepts straight.
tybe0012 so IRR > discount rate = inititate. NPV >0 = initiate
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