Just remembered - Under the IRR method

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Aravinda

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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.
 
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.
 
hey guys. would “increase” be the same as “positive?”
 
all else equal yes, IRR is when NPV=0, so if the discount goes down, NPV would now be positive instead of zero.
 
sweet~ that .0000000000001% of sanity goes a long way late at night.
 
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
 
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.
 
If WACC decreases, NPV increases. Whether or not the NPV is positive depends on whether WACC is greater or less than the IRR. If the IRR exceeds (is less than) the WACC, NPV is positive (negative). If the WACC decreased, but is still greater than the IRR, the NPV is still negative. It is just less negative.
Yourstruly isn’t really wrong. The IRR computation is completely independent of the WACC, you just need WACC to determine whether or not to accept the project. IRR doesn’t change when you change the WACC, but your decision may change on whether to accept the project or not.
 
“”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.
 
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.
 
Agree with Bill. That was the question..the WACC decreased to 12 however the IRR was still below and thus the NPV was negative.
 
Are we discussing about the question from the test? Here we go:
If IRR < WACC => NPV must be negative because NPV = 0 if WACC = IRR.
 
Guys do we have to complicate it so much, if we are talking about NPV, to me is pretty clear: wacc decreases —-> NPV increases; the same logic as bond and yields, you discount by a lesser amount ; that’s it, full stop. I don;t know why IRR should enter the picture here….correct me if I am wrong…
 
dont know how the question was worded.. sure remember that it was quite a trap..
 
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