Two Mutually Exclusive Projects Each Have a Cost of $10,000

question 25

Multiple Choice

Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project L are $15,000, while the undiscounted cash flows from Project S total $13,000. 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) As the NPV profiles cross at a discount rate of 10 percent resulting in conflict, none of these two projects should be selected.
• 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:

Replacement Planning

The process of identifying and preparing suitable employees to replace key positions within an organization in case of employee turnover.

Mentoring

A personal developmental relationship in which a more experienced or knowledgeable person helps to guide a less experienced or knowledgeable person.

Succession Management Process

A strategy for identifying and developing new leaders who can replace old leaders when they leave, retire, or die, ensuring continuity in leadership and operations.

Succession Planning

A strategic process of identifying and developing new leaders who can replace old leaders when they leave, retire or die.