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

If both projects have the same positive NPV at the given discount rate, then we would prefer the project with larger cash flows in the earlier years. However, we cannot determine which project that is based on the given information. Therefore, we conclude that one project will be preferred at rates less than 11.34 percent and the other will be preferred at higher rates, depending on the size and timing of cash flows in each project.

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