Projects a and B Have Identical Expected Lives and Identical

question 42

Multiple Choice

Projects A and B have identical expected lives and identical initial cash outflows (costs) Which of the following statements is CORRECT?

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

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Definitions:

Herring

A small, silver-colored fish found in the North Atlantic and Pacific Oceans, important for food and as bait in commercial fishing.

Opportunity Cost

The value of the alternative sacrificed when choosing one option over another.

Oranges

A citrus fruit that is a rich source of Vitamin C and is grown in warm climates worldwide, often consumed raw or as juice.

Peaches

A type of fruit with a fuzzy skin, sweet yellow or white flesh, and a stone or pit in the center.