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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › IRR Vs Cost of Capital MCQ quiz
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.
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.