- 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
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%.
B. The project should be accepted since NPV > 0.
C. Both of the above are true.
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 |