Consider Two Projects, X and Y

question 61

Multiple Choice

Consider two projects, X and Y.Project X's IRR is 19% and Project Y's IRR is 17%.The projects have the same risk and the same lives, and each has constant cash flows during each year of their lives.If the WACC is 10%, Project Y has a higher NPV than X.Given this information, which of the following statements is CORRECT?

• A) The crossover rate must be greater than 10%.
• B) If the WACC is 8%, Project X will have the higher NPV.
• C) If the WACC is 18%, Project Y will have the higher NPV.
• D) Project X is larger in the sense that it has the higher initial cost.
• E) The crossover rate must be less than 10%.

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Definitions:

Stockholders

Individuals or entities that own shares in a corporation, also commonly referred to as shareholders.

Borrowed Money

Funds that are obtained through loans or credits, which must be repaid with interest.

Financing Activities

Transactions and events that affect the long-term liabilities and equity of a company, including issuing debt, issuing equity, and paying dividends.

Cash Flow

The net amount of cash and cash-equivalents being transferred into and out of a business, indicating the organization's liquidity.