Questions and Answers
What does the net present value (NPV) measure?
The current value of future cash flows
If a project has a negative NPV, what does this indicate?
The project is not profitable
What is the purpose of determining the internal rate of return (IRR) for a project?
To estimate the return of potential investments
For which type of project should the internal rate of return be lower than the discount rate (WACC)?
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How does the net present value (NPV) relate to the decision between two projects?
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What does it mean if the NPV of a project is zero?
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How does the weighted average cost of capital (WACC) affect a project's net present value (NPV)?
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In which scenario would a company prefer a project with a negative NPV?
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What will happen if the internal rate of return (IRR) of a project is higher than the discount rate (WACC)?
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What is the significance of the discount rate in net present value analysis?
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What is the formula for calculating Net Present Value (NPV)?
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When is a project considered profitable based on its NPV value?
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Define the Internal Rate of Return (IRR) and its significance.
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What is the condition for deciding to abandon a project based on its IRR?
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Explain why the project with the highest NPV is preferred between two projects.
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What does a negative NPV indicate about a project?
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How does the formula for IRR help in making investment decisions?
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Explain the relationship between the discount rate (WACC) and the IRR of a project.
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How does the weighted average cost of capital (WACC) impact a project's NPV?
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What happens when the NPV of a project is zero?
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