1. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.
a. A project's NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV.
b. If a project's NPV is greater than zero, then its IRR must be less than the WACC.
c. If a project's NPV is greater than zero, then its IRR must be less than zero.
d. The NPVs of relatively risky projects should be found using relatively low WACCs.
e. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.
2. Other things held constant, which of the following would increase the NPV of a project being considered?
a. An increase in required net operating working capital.
b. Making the initial investment in the first year rather than spreading it over the first three years.
c. An increase in the discount rate associated with the project.
d. A shift from straight-line to MACRS depreciation.
e. The project would decrease sales of another product line.