Lancaster Corp

question 36

Multiple Choice

Lancaster Corp.is considering two equally risky, mutually exclusive projects, both of which have normal cash flows.Project A has an IRR of 11%, while Project B's IRR is 14%.When the WACC is 8%, the projects have the same NPV.Given this information, which of the following statements is CORRECT?

• A) If the WACC is 9%, Project A's NPV will be higher than Project B's.
• B) If the WACC is 6%, Project B's NPV will be higher than Project A's.
• C) If the WACC is greater than 14%, Project A's IRR will exceed Project B's.
• D) If the WACC is 9%, Project B's NPV will be higher than Project A's.
• E) If the WACC is 13%, Project A's NPV will be higher than Project B's.

---

Definitions:

Common Fixed Expenses

Overhead costs that do not fluctuate with the level of production or sales, such as rent, salaries of administrative staff, and insurance.

Net Operating Income

The total profit of a company after operating expenses are deducted from operating revenues, but before deducting taxes and interest.

Salaried Estimator

A professional responsible for projecting costs and expenses, who is compensated with a fixed annual salary rather than hourly wages.

Break-Even

The point at which total costs equal total revenue, meaning no net loss or gain is incurred.