McCall Manufacturing has a WACC of 10%.The firm is considering two normal,equally risky,mutually exclusive,but not repeatable projects.The two projects have the same investment costs,but Project A has an IRR of 15%,while Project B has an IRR of 20%.Assuming the projects' NPV profiles cross in the upper right quadrant,which of the following statements is CORRECT?
A) Each project must have a negative NPV.
B) Since the projects are mutually exclusive,the firm should always select Project B.
C) If the crossover rate is 8%,Project B will have the higher NPV.
D) Only one project has a positive NPV.
E) If the crossover rate is 8%,Project A will have the higher NPV.

Question

Quizplus · Accepted Answer

Statement c is true,while the other statements are false.If we draw an NPV profile graph,we would see that A must have the steeper slope.If the crossover is 8% and the WACC is 10%,then B will have the higher NPV.

McCall Manufacturing Has a WACC of 10