Projects S and L Both Have an Initial Cost of $10,000,followed

question 23

Multiple Choice

Projects S and L both have an initial cost of $10,000,followed by a series of positive cash inflows.Project S's undiscounted net cash flows total $20,000,while L's total undiscounted flows are $30,000.At a WACC of 10%,the two projects have identical NPVs.Which project's NPV is more sensitive to changes in the WACC?

• A) Project S.
• B) Project L.
• C) Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital.
• D) Neither project is sensitive to changes in the discount rate,since both have NPV profiles that are horizontal.
• E) The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative IRRs.

---

Definitions:

Oxaloacetate

A four-carbon molecule that plays a vital role in the citric acid cycle (Krebs cycle) and gluconeogenesis, involved in energy production and glucose synthesis.

Anaerobic Pathways

Anaerobic pathways are biochemical processes that enable cells to produce energy without the need for oxygen.

Glycogen

Highly branched polysaccharide of glucose monomers. Principal form of stored sugars in animals.

Liver Cells

Liver cells, also known as hepatocytes, are the main cell type found in the liver, performing various functions including detoxification, protein synthesis, and the production of biochemicals necessary for digestion.