Projects C and D are mutually exclusive and have normal cash flows.Project C has a higher NPV if the WACC is less than 12%,whereas Project D has a higher NPV if the WACC exceeds 12%.Which of the following statements is CORRECT?
A) Project D probably has a higher IRR.
B) Project D is probably larger in scale than Project C.
C) Project C probably has a faster payback.
D) Project C probably has a higher IRR.
E) The crossover rate between the two projects is below 12%.

Question

Quizplus · Accepted Answer

The NPV profiles cross at 12%.To the left,or at lower discount rates,C has the higher NPV,so its slope is steeper,causing its profile to hit the X axis sooner.This means that C has the lower IRR,hence D has the higher IRR.

Projects C and D Are Mutually Exclusive and Have Normal