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NPV: Which of the statements are correct?

Moynihan Motors has a WACC of 10%. The firm is considering two normal, equally risky, but mutually exclusive projects. Project A has an IRR of 15%, while Project B has an IRR of 20%. Which of the following statements is CORRECT?

A. Both projects have a negative NPV.
B. Since the projects are mutually exclusive, the firm should always select Project B
C. If the crossover rate is 8%, Project B will have a higher NPV than Project A.
D. Only one project has a positive NPV.
E. If the crossover rate is 8%, Project A will have a higher NPV than Project B

Solution Preview

Answer: C. If the crossover rate is 8%, Project B will have a higher NPV than Project A.

Statement A: is incorrect as both project A and B have IRR greater than WACC.
Statement B: ...

Solution Summary

This solution determines which of the statements regarding NPV of two normal, equally risky, but mutually exclusive projects are correct.

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