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:

Antidiuretic Hormone

A hormone released by the pituitary gland that helps regulate the body's retention of water by increasing the reabsorption of water in the kidneys.

Oxytocin

A hormone produced in the brain that stimulates uterine contractions during childbirth and lactation, also involved in social bonding and behaviors.

Physiologic Response

The body's natural reaction to stimuli, including changes in metabolism, heart rate, and other involuntary functions.

General Adaptation

The process by which organisms adjust to changes in their environment, often through physiological or behavioral modification.