Question 32 of 50 8.0 Points Moynihan Motors has a cost of capital of 10.25 perc

Question

Question 32 of 50 8.0 Points Moynihan Motors has a cost of capital of 10.25 percent. The firm has two normal projects of equal risk. Project A has an internal rate of return of 14 percent, while Project B has an internal rate of return of 12.25 percent. Which of the following statements is most correct? O A. Both projects have a negative net present value. OB. If the projects are mutualy exclusive, the firm should always select Project A C. Ifthe crossover rate (that is, the rate at which the Projects NPV profles intersect) is 8 percent, Project A will have a higher net present value than Project B D. All of the above statements are correct. Reset Selection

Explanation / Answer

Since IRR is more than WACC both Projects will have Positive NPV.

If the projects are mutually exclusive firm will select the project with higher Positive NPV. Higher Positive NPV Project may or may may not be the project with Higher IRR.

At discount rates(10.25%) Higher than Crossover rate(8%) Select Project with High IRR -Select A

Correct Answer C

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