Statements regarding the net present value

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Reference no: EM131934951

1. Which of the following statements regarding the Net Present Value (NPV) is incorrect?

A. If a project’s NPV is positive, its IRR is also positive.

B. NPV is the PV sum of all (positive and negative) cash flows from the project.

C. If the NPV is positive, the project is acceptable.

D. If a project’s NPV is zero, its IRR is the same as the appropriate cost of capital for the project.

2. Which of the following statements regarding a firm’s capital structure and leverage is incorrect?

A. A firm can reduce (lower) its leverage by retiring its existing debt or buying back its outstanding stock.

B. A firm’s capital structure basically refers to how the firm’s total capital is financed between (long-term) debt and equity.

C. The optimal leverage is that particular mix of debt and equity at which the firm value would be maximized.

D. The Irrelevance Theory by Modigliani and Miller (M&M) says that without taxes a firm’s capital structure does not matter to the maximization of the firm value or the minimization of its overall cost of capital..

Reference no: EM131934951

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