Projects S and L Are Both Normal Projects with an Initial

question 57

Multiple Choice

Projects S and L are both normal projects with an initial cost of $10, 000, followed by a series of positive cash inflows.Project S's undiscounted net cash flows total $20, 000, while L's total undiscounted flows are $30, 000.At a WACC of 10%, the two projects have identical NPVs.Which project's NPV is more sensitive to changes in the WACC?

• A) Project L.
• B) Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital.
• C) Neither project is sensitive to changes in the discount rate, since both have NPV profiles that are horizontal.
• D) The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative IRRs.
• E) Project S.

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Definitions:

Public-Key Encryption

A type of encryption where two keys, known as a key pair, are created. One key is used for coding and the other for decoding. The key for coding is distributed as a public key, whereas the private key is retained for decoding.

Key Pair

The two keys used in public-key encryption.

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Communicate

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