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.
1. A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC.
2. The NPV of a relatively low-risk project should be found using a relatively high WACC.
3. If a project's NPV is less than zero, then its IRR must be greater than zero.
4. The higher the WACC used to calculate it, the lower the calculated NPV will be.
5. If a project's NPV is greater than zero, then its IRR must be less than the WACC.
2. Which of the following statements is CORRECT?
1. One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until some time in the future.
2. One defect of the IRR method is that it does not take account of the cost of capital.
3. One defect of the IRR method is that it does not take account of the time value of money.
4. One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.
5. One defect of the IRR method is that it does not take account of cash flows over a project's full life.