Westchester Corp. is considering two equally risky, mutually exclusive projects,

Question

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

a. If the WACC is 13%, Project A's NPV will be higher than Project B's. b. If the WACC is 9%, Project A's NPV will be higher than Project B's. c. If the WACC is 6%, Project B's NPV will be higher than Project A's. d. If the WACC is greater than 14%, Project A's IRR will exceed Project B's. e. If the WACC is 9%, Project B's NPV will be higher than Project A's.

Explanation / Answer

At discount rates Higher than Crossover rate(8%) Select Project with High IRR -Select B

At discount rates Lower than Crossover rate(8%) Select Project with Low IRR - Select A

Answer e. If the WACC is 9%, Project B's NPV will be higher than Project A's.

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