Consider Projects S and L

question 68

Multiple Choice

Consider 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) If Project S has a positive NPV, Project L must also have a positive NPV.
• B) If the WACC falls, each project's IRR will increase.
• C) If the WACC increases, each project's IRR will decrease.
• D) 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.
• E) Project S must have a higher NPV than Project L.

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Definitions:

Government Regulation

The establishment of rules and laws by governmental bodies intended to manage and control activities within various sectors of society for public welfare.

Profit Margins

The difference between the cost to produce a good or service and its selling price, expressed as a percentage of the selling price, indicating financial health.

American Manufacturers

refers to businesses and individuals involved in the production of goods within the United States, contributing to the country's industrial and economic growth.

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