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You are consider we IRRS that excee RRECT? Assume t

You are consider we IRRS that excee RRECT? Assume t

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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17. You are considering two mutually exclusive, equally risky projects. Both have IRRS that exceed the cost of capital. Which of the following statements is CORRECT? Assume that the projects have normal cash flows, with one outflow followed by a set of inflows. A. If the cost of capital is greater than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects. The same project will rank higher by both criteria. B. If the cost of capital is less than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects. The same project will rank higher by both criteria. C. For a conflict to exist between NPV and IRR, the initial investment cost of one project must exceed the cost of the criteria. D. If the two project's NPV profiles do not cross, then there will be a sharp conflict as to which one should be selected.
Transcribed Image Text:17. You are considering two mutually exclusive, equally risky projects. Both have IRRS that exceed the cost of capital. Which of the following statements is CORRECT? Assume that the projects have normal cash flows, with one outflow followed by a set of inflows. A. If the cost of capital is greater than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects. The same project will rank higher by both criteria. B. If the cost of capital is less than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects. The same project will rank higher by both criteria. C. For a conflict to exist between NPV and IRR, the initial investment cost of one project must exceed the cost of the criteria. D. If the two project's NPV profiles do not cross, then there will be a sharp conflict as to which one should be selected.
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