Projects a and B Are Mutually Exclusive and Have Normal

question 106

Multiple Choice

Projects A and B are mutually exclusive and have normal cash flows.Project A has an IRR of 15% and B's IRR is 20%.The company's WACC is 12%,and at that rate Project A has the higher NPV.Which of the following statements is CORRECT?

• A) Assuming the timing pattern of the two projects' cash flows is the same, Project B probably has a higher cost (and larger scale).
• B) Assuming the two projects have the same scale, Project B probably has a faster payback than Project A.
• C) The crossover rate for the two projects must be 12%.
• D) Since B has the higher IRR, then it must also have the higher NPV if the crossover rate is less than the WACC of 12%.
• E) The crossover rate for the two projects must be less than 12%.

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Definitions:

Production Possibilities Frontier

A graphical representation that displays every possible highest output for two specific goods, given an assortment of inputs including resources among others.

Indifference Curve

In economics, a curve that represents a series of combinations of two goods that provide a consumer with equal levels of utility.

Productivity Line

A productivity line can refer to a graphical representation showing the relationship between input and output levels, indicating the efficiency of production.

Lectures

Formal presentations or talks given by educators or experts to convey knowledge or information to a group of students or audience.