CFA Practice Question

There are 233 practice questions for this study session.

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%.

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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