Projects a and B Have Identical Expected Lives and Identical

question 32

Multiple Choice

Projects A and B have identical expected lives and identical initial cash outflows (costs) .However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years.The two NPV profiles are given below: Which of the following statements is CORRECT?

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

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Definitions:

Density

The mass of a substance per unit volume, often expressed in grams per cubic centimeter or kilograms per cubic meter.

Mass

A measure of the amount of matter in an object, typically expressed in kilograms or grams.

Density

The mass per unit volume of a substance, often measured in grams per cubic centimeter (g/cm³) or kilograms per cubic meter (kg/m³).

Volume

The amount of space occupied by an object or substance, commonly measured in liters, cubic meters, or gallons.