Project X\'s IRR is 19% and Project Y\'s IRR is 17%. The projects have the same

Question

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 high NPV than X. Given this information, which of the following statements is correct?

a. The crossover rate must be less than 10%.
b. The crossover rate must be greater than 10%.
c. If the WACC is 8%, Project X will have the high NPV.
d. If the WACC is 18%, Project Y will have the higher NPV.
e. Project X is larger in the sense that it has the higher initial cost.

Explanation / Answer

The correct option is B : The crossover rate must be greater than 10%.
Reason : The crossover rate should be geater than WACC so that IRR and NPV criteia would not result in a conflict between the projects.

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