Projects a and B Have Identical Expected Lives and Identical

question 15

Multiple Choice

Projects A and B have identical expected lives and identical initial cash outflows (costs) .However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years.The two NPV profiles are given below: Which of the following statements is CORRECT?

• A) More of Project B's cash flows occur in the later years.
• B) We must have information on the cost of capital in order to determine which project has the larger early cash flows.
• C) The NPV profile graph is inconsistent with the statement made in the problem.
• D) The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR.
• E) More of Project A's cash flows occur in the later years.

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Definitions:

Change in Demand

A shift in the quantity of a product or service that consumers are willing and able to buy at various prices, due to factors like changes in consumer preferences, income, or the prices of related goods.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price level in a specific period.

Price

The pecuniary figure assumed, needed, or distributed as payoff for something.

Demand Curve

A visual depiction highlighting how the cost of a good influences the quantity that buyers seek.