Please answer both or none! Thank you ahead of time. Explain answer Part2 a.If y
ID: 2797946 • Letter: P
Question
Please answer both or none! Thank you ahead of time. Explain answer
Part2
a.If you are evaluating a project that has a cost of capital of 12% and your analysis results in a negative NPV, which of the following statements is true?
The IRR is higher than 12%.
There is no relationship between the IRR and the NPV.
The IRR is lower than 12%.
The IRR is exactly equal to 12%.
b.A company's 'bottom line' or net income decreased. Which of the following statements is most correct?
Either sales decreased, expenses increased, or both may have happened.
The only possible cause is that sales decreased.
Either sales increased, expenses decreased, or both may have happened.
The only possible cause is that expenses increased.
The IRR is higher than 12%.
There is no relationship between the IRR and the NPV.
The IRR is lower than 12%.
The IRR is exactly equal to 12%.
Explanation / Answer
a. NPV will be ZERO when Project IRR is equal to Cost of Capital. NPV will be POSITIVE when Project IRR is more than Cost of Capital.NPV will be NEGATIVE when Project IRR is less than Cost of Capital.
Answer The IRR is lower than 12%.
b.Decreases in revenues will lead to decrease in Net Income. Increase in expenses will lead to decrease in Net Income.
Correct Answer Either sales decreased, expenses increased, or both may have happened.