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Question
Consider projects S and L. Both have normal cash flows, and the projects have the same risk, hence both are evaluated with the same cost of capital, 10%. However, S has a higher IRR than L. Which of the following statements is CORRECT?a. If Project S has a positive NPV, Project L must also have a positive NPV.
b. If the cost of capital falls, each project's IRR will increase.
c. If the cost of capital increases, each project's IRR will decrease.
d. If Projects S and L have the same NPV at the current cost of capital, 10%, then Project L, the one with the lower IRR, would have a higher NPV if the cost of capital used to evaluate the projects declined.
e. Project S must have a higher NPV than Project L.
Answer
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