Sacramento Paper is considering two equally risky, mutually exclusive projects,

Question

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

Select the correct answer.

If the WACC is 9%, Project A's NPV will be higher than Project B's. If the WACC goes over 14%, Project A's IRR will exceed Project B's. If the WACC is 6%, Project B's NPV will be higher than Project A's. If the WACC is 13%, Project A's NPV will be higher than Project B's. If the WACC is 9%, Project B's NPV will be higher than Project A's.

Explanation / Answer

Hi,

Option E (If the WACC is 9%, Project B's NPV will be higher than Project A's) is the correct answer.

Thanks.

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