Two mutually exclusive projects produce the same positive NPV at a discount rate of 11.34 percent.Both projects have 4-year lives.Project A has larger cash flows than Project B in the first 2 years.Given this information,you know that
A)it makes no difference which project you accept as long as the discount rate does not exceed 11.34 percent.
B)Project A should always be preferred.
C)one project will be preferred at rates less than 11.34 percent and the other will be preferred at higher rates.
D)Project B must require a smaller investment than Project A at Time 0.
E)Project B should only be accepted if the discount rate is 11.34 percent.

Question

Quizplus · Accepted Answer

Since both projects have positive NPVs at the same discount rate, the choice between them would depend on the investor's preferences. If the investor values larger cash flows in the first two years, they would prefer Project A. However, if they prioritize larger cash flows in the later years, they would prefer Project B. Therefore, the choice between the two projects would depend on the discount rate and the investor's preferences, and hence, option C is the correct answer.

Two Mutually Exclusive Projects Produce the Same Positive NPV at a Discount