Consider Two Mutually Exclusive Projects a & B

question 9

Multiple Choice

Consider two mutually exclusive projects A & B.If you subtract the cash flows of opportunity B from the cash flows of opportunity A,then you should:

• A)take opportunity A if the regular IRR exceeds the cost of capital.
• B)take opportunity A if the incremental IRR exceeds the cost of capital.
• C)take opportunity B if the regular IRR exceeds the cost of capital.
• D)take opportunity B if the incremental IRR exceeds the cost of capital.

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Definitions:

Bond Rating Agencies

Organizations that assess the creditworthiness of both corporate and governmental bonds, issuing ratings that affect interest rates and investment attractiveness.

Upward Sloping Term Structure

A situation in the bond market where longer-term debt securities yield higher returns than shorter-term ones, indicative of normal market conditions.

Interest Rates

The amount charged by lenders as a percentage of the principal, which borrowers pay for the use of assets.