# Finance: IRR, WACC, NPV, which project to accept

Project A has an internal rate of return of 15 percent. Project B has an IRR of 14 percent. Both projects have a cost of capital of 12 percent. Which of the following statements is most correct?

a. Both projects have a positive net present value.

b. Project A must have a higher NPV than Project B.

c. If the cost of capital were less than 12 percent, Project B would have a higher IRR than Project A.

d. Statements a and c are correct.

e. Statements a, b and c are correct.

Project X and Y have an IRR of 20% and 15% respectively. Both projects have a positive net present value. Which of the following statements is most correct?

a. Project X must have a higher NPV than Project Y.

b. If both projects have the same WACC, Project X must have a higher NPV.

c. Project X must have a shorter payback than Project Y.

d. Project X payback is shorter because it considered cash flows beyond the payback period.

e. None of the aobve answers is correct.

A company estimates that its WACC is 10 percent. Which of the following independent projects should the company accept?

a. Project A requires an up front expenditure of $1,000,000 and generates an NPV of $3000.

b. Project B has a modified internal rate of return of 9.5%.

c. Project C requires and up front expenditure of $1,000,000 and generates an IRR of 9.7%.

d. Project D has an IRR of 9.5%.

e. None of the projects above should be accepted.

https://brainmass.com/business/capital-budgeting/finance-irr-wacc-npv-which-project-to-accept-40307

#### Solution Preview

Project A has an internal rate of return of 15 percent. Project B has an IRR of 14 percent. Both projects have a cost of capital of 12 percent. Which of the following statements is most correct?

a. Both projects have a positive net present value.

This is correct as IRR > WACC for both projects

b. Project A must have a higher NPV than Project B.

Not necessary For example, we may have

Year Project A Project B

0 -100 -10000

1 +115 +11400

Here the NPV of B will be higher.

c. If the cost of capital were less than 12 percent, Project B would have a higher IRR than ...

#### Solution Summary

The solution shows all the calculations together with explanations to arrive at the correct answers.