Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows...

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Finance

Assume a new project requires an initial investment of $10million dollars, with ensuing cash flows of $2, $4 and $5 millionin years 1, 2 and 3. Assuming the company's WACC is 10%, which ofthe following statements is true?
The firm should reject the project, as the IRR is lower than theWACC.
The firm should accept the project, as the IRR is higher thanthe WACC.
The firm should accept the project, as the NPV is positive.
The firm should accept the project, as the NPV is negative.
None of these statements are true.

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3.6 Ratings (425 Votes)

Net present value is solved here using a financial calculator The steps to solve on the financial calculator Press the CF button CF0 10 million It is entered with a negative sign since it is a cash outflow Cash flow for all the See Answer

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Transcribed Image Text

Assume a new project requires an initial investment of $10million dollars, with ensuing cash flows of $2, $4 and $5 millionin years 1, 2 and 3. Assuming the company's WACC is 10%, which ofthe following statements is true?The firm should reject the project, as the IRR is lower than theWACC.The firm should accept the project, as the IRR is higher thanthe WACC.The firm should accept the project, as the NPV is positive.The firm should accept the project, as the NPV is negative.None of these statements are true.