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IRR Vs Cost of Capital MCQ quiz

This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.

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November 18, 2014 at 12:30 pm #210985
Moses
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11) A Project require an initial outflow followed by 6 years of inflows.
What will be the effect on the NPV and IRR if there is a decrease in cost of capital.
a) NPV decrease IRR increase
b) NPV Increasde IRR Decrease
c) NPV increase IRR No change
d) NPV increase IRR Increase
I thought the right answer should have been d but it is given as c in the quiz. Kindly explain the reason here.
November 18, 2014 at 4:12 pm #211036
John Moffat
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The IRR is completely independent of the cost of capital.
IRR is the rate of interest at which the project gives an NPV of zero – that will not change whatever the cost of capital happens to be.
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