Lancaster Corp

question 69

Multiple Choice

Lancaster Corp.is considering two equally risky, mutually exclusive projects, both of which have normal cash flows.Project A has an IRR of 11%, while Project B's IRR is 14%.When the cost of capital is 8%, the projects have the same NPV.Given this information, which of the following statements is CORRECT?

• A) If the cost of capital is 9%, Project A's NPV will be higher than Project B's.
• B) If the cost of capital is 6%, Project B's NPV will be higher than Project A's.
• C) If the cost of capital is greater than 14%, Project A's IRR will exceed Project B's.
• D) If the cost of capital is 9%, Project B's NPV will be higher than Project A's.
• E) If the cost of capital is 13%, Project A's NPV will be higher than Project B's.

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Definitions:

Period Costs

Expenses that are not tied directly to the production process and are instead recognized as expenses in the period in which they are incurred.

Direct Materials Cost

The expenditure on raw materials that are directly used in the manufacturing of a product.

Direct Labor Cost

Expenses that are directly attributable to the manufacturing of products, including wages of workers who physically convert materials into finished goods.

Factory Overhead Cost

Indirect costs related to manufacturing, including expenses such as utilities, maintenance, and wages for indirect labor.