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Sacramento Paper is considering two mutaully exclusive projects. Project A has an internal rate of return of 12 percent, while project B has an IRR of 14 percent. The two projects have the same risk, and when the cost of capital is 7 percent the projects have the same net present value (NPV). Assume each project has an initial cash outflow followed by a series of inflows. Given this information, which of the follwing statements is most correct?

a. If the cost of capital is 13 percent, Project B's NPV will be higher than Project A's NPV
b. If the cost of capital is 9 percent, Project B's NPV will be higher than Projects A's NPV.
c. If the cost of capital is 9 percent, Project B's modified internal rate of return (MIRR) will be less thatn its IRR.
d. Statements a and c are correct.
e. All of the statements above are correct.

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Solution Summary

The solution explains how to select the correct alternative relating to NPV

Solution Preview

This problem can be solved by making the NPV profile. This is in the attached file.

The answer is
e. All of the ...

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