Consider Projects S and L

question 57

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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