QUESTION 7 0.25 points Save Answer Projects C and D are mutually exclusive and h

Question

QUESTION 7 0.25 points Save Answer Projects C and D are mutually exclusive and have normal cash flows. 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? OA Project D probably has a higher IRR OB. Project D is probably larger in scale than Project C ° C. Project C probably has a faster payback OD. Project C probably has a higher IRR O E. The crossover rate between the two projects is below 12%

Explanation / Answer

Answer: D. project C probably has a higher IRR.

Explanation: NPV is calculated on value basis and IRR is calculated on % terms. If any project has large investment and proportional cash Flow then NPV of large investment would be greater. Here in this case NPV of Project C increases with decreases in WACC and it crosses the project D hence project C is in large scale than Project D. But this option is not available as correct option hence the IRR would be higher of Project C because when the WACC increases NPV of project D becomes higher than project C

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