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.

IS THE BEST ANSWER FOR THIS A or B ?? thanks!
Cherry Books is considering two mutually exclusive projects. Project A has an internal rate of return of 18 percent, while Project B has an internal rate of return of 30 percent. The two projects have the same risk, the same cost of capital, and the timing of the cash flows i

1) Projects c and d both have normal cash flows. In other words, there is an up-front cost followed over time by a series of positive cash flows. Both projects have the same risk and a WACC equal to 10 percent. However, Project c has a higher internal rate of return than Project d. Assume that changes in the WACC have no effect

Project J has the same internal rate of return as Project K. Which of the following statements is most correct?
A) If the projects have the same size (scale) they will have the same NPV, even if the two projects have different levels of risk.
B) If the two projects have the same risk they will have the same NPV, even if the tw

30. Which one of the following statements concerning net present value (NPV) is correct?
A. An investment should be accepted if, and only if, the NPV is exactly equal to zero.
B. An investment should be accepted only if the NPV is equal to the initial cash flow.
C. An investment should be accepted if the NPV is positive and

1) Thompson corp has proposed project with normal cash flows. In other words, there is an up-front cost followed over time by a series of positive cash flows. The projects internal rate of return is 12 percent and its WACC is 10 percent. Which of the following statements is most correct?
a. The projects NPV is positive

1) Which of the following statements is most correct?
a. In general, the more uncertainty there is about market conditions, the more attractive it may be to wait before making an investment.
b. In general, the greater the strategic advantages of being the first competitor to enter a given market, the more attrac

Is the best solution letter B, D or E ??
Stock C has a beta of 1.2, while Stock D has a beta of 1.6. Assume that the stock market is efficient. Which of the following statements is most correct?
a. The required rates of return of the two stocks should be the same.
b. The expected rates of return of the two stocks should

Project A has an internal rate of return of 15 percent. Project B has an IRR of 14 percent. Both projects have a cost of capital of 12 percent. Which of the following statements is most correct?
a. Both projects have a positive net present value.
b. Project A must have a higher NPV than Project B.
c. If the cost of capit

1. Which of the following statements is CORRECT?
a. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
b. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
c. An NPV profile graph is desi