Consider two projects, X and Y. Project X\'s IRR is 19% and Project Y\'s IRR is

Question

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

Explanation / Answer

d. The crossover rate must be greater than 10%.
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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