Question: ABC Ltd. used the Net Present Value (NPV) and Internal Rate of Return (IRR) methods to evaluate an investment project that has an initial cash

ABC Ltd. used the Net Present Value (NPV) and Internal Rate of Return (IRR) methods to evaluate an investment project that has an initial cash outlay followed by annual net cash inflows over its life. After completing the evaluation, it was discovered that the cost of capital of the project had been miscalculated and that the correct cost of capital was in fact higher than that used. What will be the effect on the projects NPV and IRR once correcting for this error?

a. Both NPV and IRR will decrease.

b. Both NPV and IRR will increase.

c. NPV will decrease and IRR will remain unchanged.

d. NPV will increase and IRR will remain unchanged.

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