Two mutually exclusive projects produce the same positive NPV at a discount rate of 11.34 percent.Both projects have 4-year lives.Project A has larger cash flows than Project B in the first two years.Given this information,you know that:
A)it makes no difference which project you accept as long as the discount rate does not exceed 11.34 percent.
B)Project A should always be preferred.
C)one project will be preferred at rates less than 11.34 percent and the other will be preferred at higher rates.
D)Project B must require a smaller investment than Project A at Time 0.
E)Project B should only be accepted if the discount rate is 11.34 percent.

Question

Quizplus · Accepted Answer

Since the projects have the same positive NPV at a discount rate of 11.34%, the decision will depend on which one has a higher NPV at higher discount rates or a lower NPV at lower discount rates. Therefore, one project will be preferred at rates less than 11.34% and the other will be preferred at higher rates. The preference will depend on the specific cash flows of each project at different discount rates.

Two Mutually Exclusive Projects Produce the Same Positive NPV at a Discount