NPV, IRR, and ROIC · Flashcards

Question

What is the IRR decision rule when comparing a project to its required return?

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Answer

Accept if $I R R$ exceeds the required return.

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Question

What does it imply when $R O I C < W A C C$ ?

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Answer

The firm is destroying value on invested capital.

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Question

What does it imply when $R O I C > W A C C$ ?

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Answer

The firm is creating value on invested capital.

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Question

How is NOPAT calculated for ROIC?

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Answer

$N O P A T = E B I T \times (1 - Tax Rate)$ .

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