Normal Projects C and D: Net Present Value Comparison with WACC

Which project has a higher net present value depending on the WACC?

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Question

Normal projects C and D are mutually exclusive. Project C has a higher net present value if the WACC is less than 12 percent, whereas Project D has a higher net present value if the WACC exceeds 12 percent. Which of the following statements is most correct?

Answers

A. All of the statements are incorrect.

B. Project D has a higher internal rate of return.

C. All of the statements are correct.

D. Project D is probably larger in scale than Project C.

E. Project C probably has a faster payback. B

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Explanations

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A. B. C. D. E.

Explanation

From the information given, D has the higher IRR. The project's scale cannot be determined from the information given. As C's NPV declines more rapidly with an increase in rates, this implies that more of the cash flows are coming later on. So C would have a slower payback than D.

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