Martin Manufacturing is considering two normal,equally risky,mutually exclusive,but not repeatable projects.Martin's WACC is 10%.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) Since the projects are mutually exclusive, the firm should always select Project B.
B) If the crossover rate is 8%, Project B will have the higher NPV.
C) Only one project has a positive NPV.
D) If the crossover rate is 8%, Project A will have the higher NPV.
E) Each project must have a negative NPV.

Question

Quizplus · Accepted Answer

Statement b 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.

Martin Manufacturing Is Considering Two Normal,equally Risky,mutually Exclusive,but Not Repeatable