Westchester Corp

question 31

Multiple Choice

Westchester Corp.is considering two equally risky,mutually exclusive projects,both of which have normal cash flows.Project A has an IRR of 11%,while Project B's IRR is 14%.When the WACC is 8%,the projects have the same NPV.Given this information,which of the following statements is CORRECT?

• A) If the WACC is 13%,Project A's NPV will be higher than Project B's.
• B) If the WACC is 9%,Project A's NPV will be higher than Project B's.
• C) If the WACC is 6%,Project B's NPV will be higher than Project A's.
• D) If the WACC is greater than 14%,Project A's IRR will exceed Project B's.
• E) If the WACC is 9%,Project B's NPV will be higher than Project A's.

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Definitions:

T Distribution

A distribution of probability applied to infer parameters of a population when the sample size is limited and the population's variance is not known.

Degrees Of Freedom

A statistical concept used to determine the number of independent pieces of information when estimating a parameter or fitting a model to data.

Normal Distribution

A bell-shaped frequency distribution curve, where most occurrences take place in the middle of the range and fewer occur on either side.

Endowment

A donation or funding given to an institution or individual to provide income for ongoing support.