Project S and L both have an initial cost of $10,000 followed by a series of pos
ID: 2751899 • Letter: P
Question
Project S and L both have an initial cost of $10,000 followed by a series of positive cash inflows. Project S's undiscounted net cash flows total $20,000, while L's total undiscounted flows are $30,000. At a WACC of 10% the two projects have identical NPVs. WHICH PROJECTS NPV IS MORE SENSITIVE TO CHANGES IN THE WACC?A. Project S B. Project L C. Both D. Neither E. Solution cannot be determined Project S and L both have an initial cost of $10,000 followed by a series of positive cash inflows. Project S's undiscounted net cash flows total $20,000, while L's total undiscounted flows are $30,000. At a WACC of 10% the two projects have identical NPVs. WHICH PROJECTS NPV IS MORE SENSITIVE TO CHANGES IN THE WACC?
A. Project S B. Project L C. Both D. Neither E. Solution cannot be determined
A. Project S B. Project L C. Both D. Neither E. Solution cannot be determined
Explanation / Answer
Option c ie Both is the correct option
as the WACC is the discounting factor and any change in this would change the NPV's of both the projects
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