Projects S and L Both Have an Initial Cost of $10,000,followed

question 23

Multiple Choice

Projects S and L both have an initial cost of $10,000,followed by a series of positive cash inflows.Project S's undiscounted net cash flows total $20,000,while L's total undiscounted flows are $30,000.At a WACC of 10%,the two projects have identical NPVs.Which project's NPV is more sensitive to changes in the WACC?

• A) Project S.
• B) Project L.
• C) Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital.
• D) Neither project is sensitive to changes in the discount rate,since both have NPV profiles that are horizontal.
• E) The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative IRRs.

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Definitions:

Virtually Paralyzed

A state or condition in which an individual or entity is extremely limited in movement or functionality, often used metaphorically to describe inaction or inability to respond.

Dreaming

The experience of envisioned images, ideas, emotions, and sensations during sleep, particularly during REM sleep phases.

Cyclical Nature

The characteristic of processes that exhibit a repeating pattern over time.

Night's Sleep

The period of rest, typically at night, during which an individual refrains from wakefulness and engages in a natural state of unconsciousness.