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Just remembered - Under the IRR method

If WACC decreases from 14 to 12, what happens to the NPV...

Decreases, Increases, Remains the same

I thought, it decreases....any ideas? Thanks.

If WACC decrease, NPV will increase. WACC isn't really needed in the calculation of IRR.

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Yes if WACC goes down you have to think that you are discounting it less in any given period so the NPV would be greater.

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hey guys. would "increase" be the same as "positive?"

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all else equal yes, IRR is when NPV=0, so if the discount goes down, NPV would now be positive instead of zero.

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sweet~ that .0000000000001% of sanity goes a long way late at night.

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WACC has nothing to do with IRR. No impact.

Think from the perspective that IRR is more dependent on cash flows. No matter what is happening in economy/inflation/borrowing/taxes

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The guy above is wrong. In any case where IRR < WACC, NPV is NEGATIVE.

The question had WACC go from 14 - 12, when IRR was 11. The NPV for the project is still negative. It became less negative, but the question asked what is the project's NPV, negative, positive, zero? It is still negative.



Edited 1 time(s). Last edit at Friday, June 12, 2009 at 10:20AM by billbelemy22.

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""The guy above is wrong. In any case where IRR < WACC, NPV is NEGATIVE. ""

Dear Bill, IRR has nothing to do with WACC, in its calculation.

It is only after you have calculated IRR that you compare it to WACC and if it is less than WACC which means your NPV is negative. Simple artihmatics.

Ok , let me tell you from another perspective.

Take your calculator and feed Cf0=-100 and Cf1=110

Now press IRR and see what happens ? It will not be dependent on your input of I/Y button on calculator.

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I never said IRR had anything to do with WACC.

but NPV has everything to do with IRR and its relationship to WACC. When IRR < WACC, NPV = negative.

Still negative was the answer to the question.

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