Banking · Project Appraisal
In a term loan appraisal for an infrastructure project, if the calculated Internal Rate of Return (IRR) is 14% while the Weighted Average Cost of Capital (WACC) is 16%, what should be the lender's primary conclusion?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The project is highly profitable and credit sanction should be accelerated.
- 2The project is not financially viable as returns do not cover the cost of capital.✓
- 3The financial viability is sound provided sufficient collateral security is furnished.
- 4The project cost estimates should be inflated to artificially raise the IRR metric.
Correct answer
The project is not financially viable as returns do not cover the cost of capital.
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