You Are Considering Two Mutually Exclusive,equally Risky,projects

question 13

Multiple Choice

You are considering two mutually exclusive,equally risky,projects.Both have IRRs that exceed the WACC.Which of the following statements is CORRECT? Assume that the projects have normal cash flows,with one outflow followed by a series of inflows.

• A) If the two projects' NPV profiles do not cross,then there will be a sharp conflict as to which one should be selected.
• B) If the cost of capital is greater than the crossover rate,then the IRR and the NPV criteria will not result in a conflict between the projects.One project will rank higher by both criteria.
• C) If the cost of capital is less than the crossover rate,then the IRR and the NPV criteria will not result in a conflict between the projects.One project will rank higher by both criteria.
• D) For a conflict to exist between NPV and IRR,the initial investment cost of one project must exceed the cost of the other.
• E) For a conflict to exist between NPV and IRR,one project must have an increasing stream of cash flows over time while the other has a decreasing stream.If both sets of cash flows are increasing or decreasing,then it would be impossible for a conflict to exist,even if one project is larger than the other.

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Definitions:

Hydrolyzes

Refers to the chemical process where water is used to break down a compound, often a polymer, into smaller units.

Organic Product

A compound produced through an organic reaction, typically consisting of carbon atoms in combination with hydrogen, oxygen, nitrogen, or other elements.

Ketone

Organic compounds featuring a carbonyl group (C=O) bonded to two carbon atoms, used in solvents and in the manufacture of various chemicals.

Enol

A chemical species characterized by a carbon-carbon double bond adjacent to an alcohol group, often in equilibrium with its keto form.