Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project L are $15,000, while the undiscounted cash flows from Project S total $13,000. Their NPV profiles cross at a discount rate of 10 percent. Which of the following statements best describes this situation??
A. ?The NPV and IRR methods will select the same project if the required rate of return is greater than 10 percent; for example, 18 percent.
B. ?The NPV and IRR methods will select the same project if the cost of capital is less than 10 percent; for example, 8 percent.
C. ?As the NPV profiles cross at a discount rate of 10 percent resulting in conflict, none of these two projects should be selected.
D. ?Project L should be selected at any required rate of return, because it has a higher IRR.
E. ?Project S should be selected at any required rate of return, because it has a higher IRR.
Answer: A
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