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?
a. If the WACC is 14 percent, Project Bs NPV will be higher than Project As NPV.
b. If the WACC is 9 percent, Project Bs NPV will be lower than Project As NPV.
c. cent, Project As NPV will be lower than Project Bs NPV
d. All of the statements above are correct.
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