Projects S and L both have normal cash flows,and the projects have the same risk,hence both are evaluated with the same WACC,10%.However,S has a higher IRR than L.Which of the following statements is CORRECT?
A) Project S must have a higher NPV than Project L.
B) If Project S has a positive NPV,Project L must also have a positive NPV.
C) If the WACC falls,each project's IRR will increase.
D) If the WACC increases,each project's IRR will decrease.
E) If Projects S and L have the same NPV at the current WACC,10%,then Project L,the one with the lower IRR,would have a higher NPV if the WACC used to evaluate the projects declined.

Question

Quizplus · Accepted Answer

Refer to the NPV profile below.Statement a is false,because you do not know which project has the higher NPV unless you know the WACC.Statement b is false,because if the WACC is greater than IRR_L but less than IRR_S then Project S will have a positive NPV and Project L's NPV will be negative.Statements c and d are false,because IRR is independent of WACC.Statement e is true,because Project S has the higher IRR,so Project L's NPV profile is above Project S's when the WACC is less than the crossover rate. ? 11ea856c_8b9c_c289_9aec_b1ce4c96722a_TB1222_00

Projects S and L Both Have Normal Cash Flows,and the Projects