Two Mutually Exclusive Projects Each Have a Cost of R10,000

question 36

Multiple Choice

Two mutually exclusive projects each have a cost of R10,000.The total, undiscounted cash flows from Project L are R15,000, while the undiscounted cash flows from Project S total R13,000.Their NPV profiles cross at a discount rate of 10 percent.Which of the following statements best describes this situation?

• A) The NPV and IRR methods will select the same project if the required rate of return is greater than 10 percent; for example, 18 percent.
• B) The NPV and IRR methods will select the same project if the cost of capital is less than 10 percent; for example, 8 percent.
• C) To determine if a ranking conflict will occur between the two projects the required rate of return is needed as well as an additional piece of information.
• D) Project L should be selected at any required rate of return, because it has a higher IRR.
• E) Project S should be selected at any required rate of return, because it has a higher IRR.

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Definitions:

IMF

The International Monetary Fund, an organization of 190 countries, working to foster global monetary cooperation, secure financial stability, and reduce poverty around the world.

World Bank

An international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects.

Geneva Conventions

International meetings that attempted to deal with many of the contemporary complications brought on by the nature of warfare in the twentieth century.