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

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**CFA Practice Question**

Company B is considering a capital investment project. The appropriate discount rate for the project is WACC = 5.25%. The project has the following NPV and IRR: NPV = - $4,250,000, IRR = 3.01%.

II. The project should be accepted since NPV < 0.

Which of the following statements is true?

I. The project should be accepted since IRR < WACC.

II. The project should be accepted since NPV < 0.

A. I only

B. II only

C. Neither is correct.

**Explanation:**According to the NPV Rule, all projects with NPV < 0 should be rejected. According to the IRR Rule, all projects with IRR < WACC (or the appropriate discount rate) should be rejected. Therefore, Company B's project should be rejected.

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