Projects A and B are mutually exclusive and have normal cash flows. Project A ha

Question

Projects A and B are mutually exclusive and have normal cash flows. Project A has an IRR of 15% and B's IRR is 20%. The company’s WACC is 12%, and at that rate Project A has the higher NPV. Which of the following statements is CORRECT?
A) The crossover rate for the two projects must be less than 12%.
B) Assuming the timing pattern of the two projects’ cash flows is the same, Project B probably has a higher cost (and larger scale).
C) Assuming the two projects have the same scale, Project B probably has a faster payback than Project A.
D) The crossover rate for the two projects must be 12%.
E) Since B has the higher IRR, then it must also have the higher NPV if the crossover rate is less than the WACC of 12%.

Explanation / Answer

C) Assuming the two projects have the same scale, Project B probably has a faster payback than Project A.

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