Projects C and D both have normal cash flows and are mutually exclusive.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 is probably larger in scale than Project C.
B) Project C probably has a faster payback.
C) Project C probably has a higher IRR.
D) The crossover rate between the two projects is below 12%.
E) Project D probably has a higher IRR.

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 Both Have Normal Cash Flows and Are