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Basic Question 7 of 29
If an investment project has an internal rate of return equal to its WACC, the NPV for that project is ______.
B. positive
C. zero
A. negative
B. positive
C. zero
User Contributed Comments 7
| User | Comment |
|---|---|
| armanaziz | How is "interest rate" defined here? Interest rate not necessarily equal a company's Cost of Capital. A company may decide to invest liquid fund in some interest generating bond.. or loan out to some company for fixed interest. That's why the answer is D. |
| sarath | If teh company cost of capital is equal to the internal rate of return of a project then the NPV will be ZERO... |
| americade | Interest Rate here is the market rate that may be either more or less than the company COC. |
| dipuo | Isnt IRR always producing NPV=0? |
| MattNYC | the question should stipulate whether or not the project is independent or mutually exclusive too. I was confused by this one. |
| MattNYC | Nevermind the earlier comment. The IRR is the rate that sets NPV = 0 |
| fabsan | WACC=Weighted Average Cost of Capital is your Required Rate of Return. When IRR is equal to RRR, NPV=0. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
describe the capital allocation process, calculate net present value (NPV), internal rate of return (IRR), and return on invested capital (ROIC), and contrast their use in capital allocation
CFA® 2024 Level I Curriculum, Volume 2, Module 5.