Consider Projects S and L

question 50

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

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Definitions:

Liking

The pleasure that follows receipt of a reward.

Similarity

In perception, a principle by which we tend to group like figures, especially by color and orientation.

Liking

A positive feeling of affection or preference towards someone or something.

Attribution of Arousal Theory

A theory in social psychology that suggests people make attributions about the source of their arousal or emotional states, which can influence their emotions and behaviors.