Key data regarding NPV
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Project A and Project B are mutually exclusive projects with equal risk. Project A has an internal rate of return of 12 percent, while Project B has an internal rate of return of 15 percent. The two projects have the same net present value when the cost of capital is 7 percent. In other words, the crossover rate is 7 percent. Assume each project has an initial cash outflow followed by a series of inflows. Which of the following statements is most correct?
a. If the cost of capital is 10 percent, each project will have a postivie net present value.
b. If the cost of capital is 6 percent, Project B has a higher net present value than project A.
c. If the cost of capital is 13 percent, Project B has a higher net present value than Project A.
d. Statements a and b are correct.
e. All of the statements above are correct. hide problem
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Solution Summary
The solution explains how to select the correct alternative relating to NPV.
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We can answer this based on NPV profile which is in the attached file.
a. This is correct since the IRR for both is more ...
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