Question
Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project L are $15,000, while the undiscounted cash flows
Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project L are $15,000, while the undiscounted cash flows from Project S total $13,000. Their NPV profiles cross at a discount rate of 10 percent. Which of the following statements best describes this situation? Please leave an explanation. a. The NPV and IRR methods will select the same project if the cost of capital is greater than 10 percent; for example, 18 percent. b. The NPV and IRR methods will select the same project if the cost of capital is less than 10 percent; for example, 8 percent. c. To determine if a ranking conflict will occur between the two projects the cost of capital is needed as well as an additional piece of information. d. Project L should be selected at any cost of capital, because it has a higher IRR. e. Project S should be selected at any cost of capital, because it has a higher IRR.
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