Projects S and L Are Equally Risky,mutually Exclusive,and Have Normal

question 39

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

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Definitions:

Club Goods

Goods that are excludable but non-rivalrous, meaning access to the good can be limited by a fee or membership, but one person's use does not diminish availability to others.

Common Resource

A resource like air or water that is non-excludable and rival in consumption, leading to potential overuse.

Fish In The Ocean

A term referring to the natural aquatic resources found in oceans, which can include various types of fish and sea life considered as potential food sources or ecological assets.

Private Goods

Goods that are rivalrous and excludable, meaning one person's consumption prevents another's.