Question
Martin Manufacturing is considering two normal, equally risky, mutually exclusive, but not repeatable projects. Martin's cost of capital is 10%. The two projects have the
Martin Manufacturing is considering two normal, equally risky, mutually exclusive, but not repeatable projects. Martin's cost of capital is 10%. The two projects have the same investment costs, but Project A has an IRR of 15%, while Project B has an IRR of 20%. Assuming the projects' NPV profiles cross in the upper right quadrant, which of the following statements is CORRECT a. Since the projects are mutually exclusive, the firm should always select Project B. b. Only one project has a positive NPV. c. If the crossover rate is 8%, Project A will have the higher NPV. d. Each project must have a negative NPV. e. If the crossover rate is 8%, Project B will have the higher NPV.
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