Question
Sacramento Paper is considering two mutually exclusive projects. Project A has an internal rate of return (IRR) of 11 percent, while Project B has an
Sacramento Paper is considering two mutually exclusive projects. Project A has an internal rate of return (IRR) of 11 percent, while Project B has an IRR of 15 percent. The two projects have the same risk, and at a required return of 8.0 percent the projects have the same NPV (i.e., the cross-over rate = 8%). Assume each project has an initial cash outflow followed by a series of inflows. Given this information, which of the following statements is correct?
| If the WACC is 14 percent, Project Bs NPV will be higher than Project As NPV. | ||
| If the WACC is 9 percent, Project Bs NPV will be lower than Project As NPV. | ||
| If the WACC is 6 percent, Project As NPV will be lower than Project Bs NPV | ||
| All of the statements above are correct. |
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ISE International Financial Management
Authors: Cheol Eun, Bruce Resnick, Tuugi Chuluun
9th International Edition
1260575314, 9781260575316
