Projects a and B Are Mutually Exclusive and Have Normal

question 96

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 WACC is 12%, and at that rate Project A has the higher NPV. Which of the following statements is CORRECT?

• A) The crossover rate for the two projects must be less than 12%.
• B) Assuming the timing pattern of the two projects' cash flows is the same, Project B probably has a higher cost (and larger scale).
• C) Assuming the two projects have the same scale, Project B probably has a faster payback than Project A.
• D) The crossover rate for the two projects must be 12%.
• E) Since B has the higher IRR, then it must also have the higher NPV if the crossover rate is less than the WACC of 12%.
• Problems

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Definitions:

Circumstantial Evidence

Evidence that indirectly proves a fact through an inference, as opposed to direct observation or testimony.

Direct Evidence

Evidence that directly proves a fact without needing any inference or presumption, such as eyewitness testimony.

Hearsay

Evidence based on the reports of others rather than on personal knowledge, which is not admissible in court under most circumstances.

Direct Evidence

Evidence that directly proves a fact without the need for any inference or presumption.