Projects S and L Are Equally Risky, Mutually Exclusive, and Have

question 88

Multiple Choice

Projects S and L are equally risky, mutually exclusive, and have normal cash flows.Project S has an IRR of 15%, while Project L's IRR is 12%.The two projects have the same NPV when the WACC is 7%.Which of the following statements is CORRECT?

• A) If the WACC is 6%, Project S will have the higher NPV.
• B) If the WACC is 13%, Project S will have the lower NPV.
• C) If the WACC is 10%, both projects will have a negative NPV.
• D) Project S's NPV is more sensitive to changes in WACC than Project L's.
• E) If the WACC is 10%, both projects will have positive NPVs.

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Definitions:

Beginning and End

Conceptual points in time that represent the start and conclusion of an event, process, or entity.

Recency

The principle that the most recently presented items or experiences will most likely be remembered best.

Automatic Processing

A type of information processing that occurs without the need for conscious attention, enabling tasks to be performed without deliberation.

Memory Consolidation

The process by which the brain converts short-term memories into long-term memories, making them stable over time.