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years, while most of the other project's cash flows occur in the later years. The two NPV profiles are given below: NPV ($) x (8) cash flows

years, while most of the other project's cash flows occur in the later years. The two NPV profiles are given below: NPV ($) x (8) cash flows

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
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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 ($) Which of the following statements is CORRECT? Oa. The NPV profile graph is inconsistent with the statement made in the problem. Ob. More of Project A's cash flows occur in the later years. Oc. More of Project B's cash flows occur in the later years. Od. The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR. Oe. We must have information on the cost of capital in order to determine which project has the larger early cash flows.
Transcribed Image Text:Projects A and B have identical expected lives and identical initial cash outflows (costs). However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years. The two NPV profiles are given below: NPV ($) Which of the following statements is CORRECT? Oa. The NPV profile graph is inconsistent with the statement made in the problem. Ob. More of Project A's cash flows occur in the later years. Oc. More of Project B's cash flows occur in the later years. Od. The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR. Oe. 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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