Projects a and B Are Mutually Exclusive and Have Normal

question 17

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 cost of capital 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 cost of capital of 12%.
• E) The crossover rate for the two projects must be less than 12%.

---

Definitions:

Liability Account

A financial reporting category that encompasses all obligations or debts a company owes to outside parties.

Merchandise Inventory

The total cost of all the goods held by a company that are available for sale to customers in the retail or wholesale sector.

Periodic

Relating to, occurring, or appearing at regularly occurring intervals.

Corresponding Cost

Corresponding cost refers to the specific expenses directly associated with the production of a good or service, similar to direct costs.