Question
Projects X and Y are equally risky, mutually exclusive, and have normal cash flows. Project Y has an IRR of 12%, while Project X's IRR
Projects X and Y are equally risky, mutually exclusive, and have normal cash flows. Project Y has an IRR of 12%, while Project X's IRR is 8%. The two projects have the same NPV when the WACC is 4%. Which of the following statements is CORRECT?
If the WACC is 3%, Project Y will have the higher NPV; therefore you will accept Project Y. If the WACC is 10%,
Project Y will have the lower NPV; therefore you will accept Project X.
If the WACC is 7%, both projects will have a negative NPV; therefore neither will be accepted.
If the WACC is 5%, Project Y will have the higher NPV; therefore you will accept Project Y.
If the WACC is 6%, both projects will have positive NPVs; therefore both of the projects will be accepted.
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