Consider Projects S and L

question 73

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 cost of capital, 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 cost of capital falls, each project's IRR will increase.
• C) If the cost of capital increases, each project's IRR will decrease.
• D) If Projects S and L have the same NPV at the current cost of capital, 10%, then Project L, the one with the lower IRR, would have a higher NPV if the cost of capital used to evaluate the projects declined.
• E) Project S must have a higher NPV than Project L.

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