5. Projects A and B are equally risky, mutually exclusive projects with normal c

Question

5. Projects A and B are equally risky, mutually exclusive projects with normal cash flows. Project A has an IRR of 15%, while Project B’s IRR is 12%. The two projects have the same NPV when the WACC is 10%. Which of the following statements is CORRECT?

a.   If the WACC is 9%, Project A will have the higher NPV.

b.   Project A is probably larger in scale

c.   If the WACC is 13%, Project B will have a negative NPV.

d.   If the cost of capital is 9%, Project B will have a higher profitability index

Please answer with explanation and correctly. I have answer sheet with me. wrong answer will give you a thumb down.

Explanation / Answer

Ans;

a.   Project A has an IRR of 15%, while Project B’s IRR is 12%.

Explanation;

Project A has an IRR of 15%, while Project B’s IRR is 12% is the NPV  Project A has an IRR of 15%, while Project B’s IRR is 12%

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