Projects S and L are equally risky, mutually exclusive, and have normal cash flows.Project S has an IRR of 15%, while Project L's IRR is 12%.The two projects have the same NPV when the cost of capital is 7%.Which of the following statements is CORRECT?
A) If the cost of capital is 6%, Project S will have the higher NPV.
B) If the cost of capital is 13%, Project S will have the lower NPV.
C) If the cost of capital is 10%, both projects will have a negative NPV.
D) Project S's NPV is more sensitive to changes in cost of capital than Project L's.
E) If the cost of capital is 10%, both projects will have positive NPVs.

Question

Quizplus · Accepted Answer

Since both projects have IRRs greater than 10%, they will have positive NPVs at a cost of capital of 10%.

Projects S and L Are Equally Risky, Mutually Exclusive, and Have