Projects S and L Are Equally Risky, Mutually Exclusive, and Have

question 20

Multiple Choice

Projects S and L are equally risky, mutually exclusive, and have normal cash flows.Project S has an IRR of 15%, while Project L's IRR is 12%.The two projects have the same NPV when the cost of capital is 7%.Which of the following statements is CORRECT?

• A) If the cost of capital is 6%, Project S will have the higher NPV.
• B) If the cost of capital is 13%, Project S will have the lower NPV.
• C) If the cost of capital is 10%, both projects will have a negative NPV.
• D) Project S's NPV is more sensitive to changes in cost of capital than Project L's.
• E) If the cost of capital is 10%, both projects will have positive NPVs.

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Definitions:

Sample Mean Difference

The difference between the mean values of two samples drawn from the same or different populations.

Population Means

The average value of a particular characteristic in the entire population.

Sampling Distribution

A sampling distribution is the probability distribution of a given statistic based on a random sample.

Independent Samples

Two or more groups of data that are collected from unrelated, separate populations with no paired or matched elements between them.