Projects A and B have identical expected lives and identical initial cash outflows (costs). However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years. The two NPV profiles are given below: NPV ($) B A Which of the following statements is CORRECT? r (8) O a. The NPV profile graph is inconsistent with the statement made in the problem O b. The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR. More of Project A's cash flows occur in the later years. O c. O d. More of Project B's cash flows occur in the later years. O e. We must have information on the cost of capital in order to determine which project has the larger early cash flows
Projects A and B have identical expected lives and identical initial cash outflows (costs). However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years. The two NPV profiles are given below: NPV ($) B A Which of the following statements is CORRECT? r (8) O a. The NPV profile graph is inconsistent with the statement made in the problem O b. The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR. More of Project A's cash flows occur in the later years. O c. O d. More of Project B's cash flows occur in the later years. O e. We must have information on the cost of capital in order to determine which project has the larger early cash flows
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Projects A and B have identical expected lives and identical initial cash outflows (costs). However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years. The two NPV
profiles are given below:
NPV
($)
Which of the following statements is CORRECT?
O a. The NPV profile graph is inconsistent with the statement made in the problem
O b.
The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR.
О с.
More of Project A's cash flows occur in the later years.
O d.
More of Project B's cash flows occur in the later years.
O e.
We must have information on the cost of capital in order to determine which project has the larger early cash flows
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