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Corporate Finance Q63

0. Claude Browning is reviewing a profitable investment project that has a conventional cash flow pattern. If the cash flows of the project, initial outlay, and future after-tax cash flows all reduce by half, Browning would predict that the IRR would:

  • Option : A
  • Explanation : The IRR would stay the same because both the initial outlay and the after-tax cash flows halve, so that the return on each dollar invested remains the same. All of the cash flows and their present values also reduce in half. The difference between the total present value of the future cash flows and the initial outlay (the NPV) also halves.
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