Lancaster Corp. is considering two equally risky, mutually exclusive projects, b

Question

Lancaster Corp. is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11%, while Project B's IRR is 14%. When the WACC is 8%, the projects have the same NPV of $20,000. Given this information, draw the NPV profile of projects A and B in the same picture, indicating the three points including IRR of Project A, IRR of Project B, and WACC of the company. Explain which of the following statements is CORRECT? If the WACC is 9%, Project A's NPV will be higher than Projects B's. If the WACC is greater than 14%, Project A's IRR will exceed Project B's. If the WACC is 9% Project B's NPV will be higher than Project A's.

Explanation / Answer

Answer: c If the WACC is 9%, Project B’s NPV will be higher than Project A’s.

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.