Porbandar plc is considering the investment in a project that has an initial cash outlay followed by a series of net cash inflows. The business applied the NPV and IRR methods to evaluate the proposal but, after the evaluation had been undertaken, it was found that the correct cost of capital figure was lower than that used in the evaluation.What will be the effect of correcting for this error on the NPV and IRR figures? Effect on NPVEffect on IRRADecreaseDecreaseBDecreaseNo ChangeCIncreaseNo ChangeDIncreaseIncrease

IRR is actually the acronym of the internal rate of return which is the rate which is determined so…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Porbandar plc is considering the investment in a project that has an initial cash outlay followed by a series of net cash inflows. The business applied the NPV and IRR methods to evaluate the proposal but, after the evaluation had been undertaken, it was found that the correct cost of capital figure was lower than that used in the evaluation.

What will be the effect of correcting for this error on the NPV and IRR figures?

	Effect on NPV	Effect on IRR
A	Decrease	Decrease
B	Decrease	No Change
C	Increase	No Change
D	Increase	Increase

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