CFA® Level 1: CFA® Level 1 Exam - Most Correct Statement

Most Correct Statement for CFA® Level 1 Exam

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Question

Which of the following statements is most correct?

Answers

A. None of the answers are correct.

B. The modified internal rate of return (MIRR) can never exceed the IRR.

C. All of the answers are correct.

D. If the IRR of Project A exceeds the IRR of Project B, then Project A must also have a higher NPV.

E. If a project with normal cash flows has an IRR which exceeds the cost of capital, then the project must have a positive NPV.

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Explanations

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A. B. C. D. E.

The IRR is the discount rate at which a project's NPV is zero. If a project's IRR exceeds the firm's cost of capital, then its NPV must be positive, since NPV is calculated using the firm's cost of capital to discount project cash flows.

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