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:

Inputs

The resources used in the production process, including raw materials, labor, and capital.

Process Flow Chart

A visual representation of the steps in a process, showing how tasks or operations are connected.

Pareto Analysis

A decision-making technique used to prioritize tasks or identify key causes of problems based on the principle that 80% of effects come from 20% of the causes.

Fishbone Diagram

A visual tool used for identifying and organizing the potential causes of a problem, typically resembling the shape of a fishbone.