Projects S and L Both Have Normal Cash Flows, and the Projects

question 85

Multiple Choice

Projects S and L both have normal cash flows, and the projects have the same risk, hence both are evaluated with the same WACC, 10%. However, S has a higher IRR than L. Which of the following statements is CORRECT?

• A) Project S must have a higher NPV than Project L.
• B) If Project S has a positive NPV, Project L must also have a positive NPV.
• C) If the WACC falls, each project’s IRR will increase.
• D) If the WACC increases, each project’s IRR will decrease.
• E) If Projects S and L have the same NPV at the current WACC, 10%, then Project L, the one with the lower IRR, would have a higher NPV if the WACC used to evaluate the projects declined.

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Definitions:

Mindfulness

A mental state achieved by focusing one's awareness on the present moment, while calmly acknowledging and accepting one's feelings, thoughts, and bodily sensations.

Work Stress

The response individuals may have when presented with work demands and pressures that are not matched to their knowledge and abilities.

Stressors

Factors or events that cause stress to an individual.

Stress Reaction

The physical, mental, or emotional response to a perceived threat, challenge, or change, often characterized by increased alertness and readiness for action.