Projects S and L are equally risky, mutually exclusive, and have normal cash flows.Project S has an IRR of 15%, while Project L's IRR is 12%.The two projects have the same NPV when the WACC is 7%.Which of the following statements is CORRECT?

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The easiest way to think about this question is to begin by drawing an NPV profile as shown below, then using it to decide which statement is correctrue. 11ea1b84_8bb0_206c_a54a_e3bc7055d3a7_TB3581_00 Statement e is t, because both projects have an IRR greater than the WACC and thus will have a positive NPV.Statement a is f, because at 6%, the WACC is less than the crossover rate and Project L has a higher NPV than S.Statement b is f, because at 13% the WACC is greater than the crossover rate and S would have a higher NPV than L.Statement c is f, because of reasons mentioned in statement a.Statement d is f, because Project L's NPV profile is steeper, which means Project L's NPV is more sensitive to changes in WACC than Project S's NPV.

Projects S and L Are Equally Risky, Mutually Exclusive, and Have