- CFA Exams
- CFA Exam: Level I 2021
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 3. Investment Decision Criteria

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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%.

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.

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**User Contributed Comments**
2

User |
Comment |
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fedha |
good question. Helps get the concepts straight. |

tybe0012 |
so IRR > discount rate = inititate. NPV >0 = initiate |