Projects a and B Are Mutually Exclusive and Have Normal

question 17

Multiple Choice

Projects A and B are mutually exclusive and have normal cash flows.Project A has an IRR of 15% and B's IRR is 20%.The company's cost of capital is 12%, and at that rate Project A has the higher NPV.Which of the following statements is CORRECT?

• A) Assuming the timing pattern of the two projects' cash flows is the same, Project B probably has a higher cost (and larger scale).
• B) Assuming the two projects have the same scale, Project B probably has a faster payback than Project A.
• C) The crossover rate for the two projects must be 12%.
• D) Since B has the higher IRR, then it must also have the higher NPV if the crossover rate is less than the cost of capital of 12%.
• E) The crossover rate for the two projects must be less than 12%.

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Definitions:

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