Two Mutually Exclusive Projects Produce the Same Positive NPV at a Discount

question 42

Multiple Choice

Two mutually exclusive projects produce the same positive NPV at a discount rate of 11.34 percent.Both projects have 4-year lives.Project A has larger cash flows than Project B in the first two years.Given this information,you know that:

• A)it makes no difference which project you accept as long as the discount rate does not exceed 11.34 percent.
• B)Project A should always be preferred.
• C)one project will be preferred at rates less than 11.34 percent and the other will be preferred at higher rates.
• D)Project B must require a smaller investment than Project A at Time 0.
• E)Project B should only be accepted if the discount rate is 11.34 percent.

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Definitions:

Standard Deviation

A statistical measure that quantifies the variation or dispersion of a set of numerical data.

Rough Estimate

A preliminary and imprecise calculation or assessment, often made without access to all relevant data.

Professional Baseball Batting Averages

A statistical measure used in baseball to evaluate a player's batting performance, calculated by dividing a player's hits by their total at-bats.

Normal Curve

The normal curve, also known as the bell curve, is a graphical representation of a normal distribution, where most occurrences take place near the mean, with fewer instances happening as one moves away from the mean.