Projects S and L Are Both Normal Projects with an Initial

question 13

Multiple Choice

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

---

Definitions:

Prefrontal Cortex

The front part of the frontal lobes of the brain, involved in complex behaviors such as planning, decision-making, and moderating social behavior.

Working Memory

A cognitive framework with a set limit, aimed at temporarily keeping information ready for processing.

Brain Regions

Specific areas within the brain that have distinct functions or roles in processing information and controlling behavior.

Stress Hormones

Hormones that are released in the body's response to stress, such as cortisol, which can affect various bodily functions.