Project a Has an IRR of 15 Percent

question 7

Multiple Choice

Project A has an IRR of 15 percent. Project B has an IRR of 18 percent. Both projects have the same risk. Which of the following statements is most correct?

• A) If the WACC is 10 percent, both projects will have a positive NPV, and the NPV of Project B will exceed the NPV of Project A.
• B) If the WACC is 15 percent, the NPV of Project B will exceed the NPV of Project A.
• C) If the WACC is less than 18 percent, Project B will always have a shorter payback than Project A.
• D) If the WACC is greater than 18 percent, Project B will always have a shorter payback than Project A.
• E) If the WACC increases, the IRR of both projects will decline.

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Definitions:

Inexperienced

Lacking experience or knowledge in a particular area or activity.

Voidable Rights

Rights that may be legally nullified or voided under certain conditions, typically at the discretion of one of the parties involved.

Undue Influence

An improper use of power or trust in a way that deprives a person of free will and substitutes another's objective.

Mutual Mistake

A situation in contract law where all parties involved have a mistaken belief about a basic assumption on which the contract is based, potentially making the contract voidable.