Projects a and B Have Identical Expected Lives and Identical

question 88

Multiple Choice

Projects A and B have identical expected lives and identical initial cash outflows (costs) .However,most of one project's cash flows come in the early years,while most of the other project's cash flows occur in the later years.The two NPV profiles are given below:
Which of the following statements is CORRECT?

• A) More of Project B's cash flows occur in the later years.
• B) We must have information on the cost of capital in order to determine which project has the larger early cash flows.
• C) The NPV profile graph is inconsistent with the statement made in the problem.
• D) The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR.
• E) More of Project A's cash flows occur in the later years.

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Definitions:

Abyssal Zone

A deep-sea environment located at depths of 4,000 to 6,000 meters, characterized by high pressure, low temperatures, and complete darkness.

Benthic Zone

The ecological region at the lowest level of a body of water such as an ocean or a lake, including the sediment surface and sub-surface layers.

Littoral Zone

The shallow nearshore area of a body of water, where sunlight can reach the bottom, supporting diverse aquatic plants and animals.

Limnetic Zone

The open surface waters in a freshwater habitat, away from the shore, where there is enough light penetration to support photosynthesis.