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?
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A. B. C. D. E.D
In this situation, D has a flatter NPV profile and a higher IRR. Project acceptance depends on what is the correct discount rate. If the discount rate is less than
12%, accept C. If it is greater than 12%, accept D. Projects that return their cash flows early (faster payback) and have lower initial investments tend to have higher IRRs.