You Are Considering Two Mutually Exclusive, Equally Risky, Projects

question 54

Multiple Choice

You are considering two mutually exclusive, equally risky, projects.Both have IRRs that exceed the cost of capital.Which of the following statements is CORRECT? Assume that the projects have normal cash flows, with one outflow followed by a series of inflows.

• A) If the cost of capital is greater than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects.The same project will rank higher by both criteria.
• B) If the cost of capital is less than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects.The same project will rank higher by both criteria.
• C) For a conflict to exist between NPV and IRR, the initial investment cost of one project must exceed the cost of the other.
• D) For a conflict to exist between NPV and IRR, one project must have an increasing stream of cash flows over time while the other has a decreasing stream.If both sets of cash flows are increasing or decreasing, then it would be impossible for a conflict to exist, even if one project is larger than the other.
• E) If the two projects' NPV profiles do not cross, then there will be a sharp conflict as to which one should be selected.

---

Definitions:

Leadership Practice

The application of skills, behaviors, and strategies by individuals in positions of influence to guide and direct others.

Today's World

A term referring to the current state of global society, emphasizing contemporary issues and realities.

Consult Individually

The process of seeking advice or guidance on a one-on-one basis, typically in a professional or therapeutic context.

Ethics Competency

The capacity to comprehend and utilize moral principles and norms when making decisions.