Projects C and D Both Have Normal Cash Flows and Are

question 82

Multiple Choice

Projects C and D both have normal cash flows and are mutually exclusive.Project C has a higher NPV if the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds 12%.Which of the following statements is CORRECT?

• A) Project D is probably larger in scale than Project C.
• B) Project C probably has a faster payback.
• C) Project C probably has a higher IRR.
• D) The crossover rate between the two projects is below 12%.
• E) Project D probably has a higher IRR.

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Definitions:

Creditor Beneficiary

A third party who benefits from a contract in which the promisor agrees to pay the promisee’s debt.

Donee

The recipient of a gift or donation, who is typically not required to provide anything in return to the donor.

Incidental

Occurring as a minor accompaniment to something else or happening as a subordinate or secondary aspect.

Promisor

In a third-party beneficiary contract, the party to the contract who made the promise that benefits the third party.