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Sacramento Paper is considering two mutually exclusive projects. Project A has an internal rate of return (IRR) of 11 percent, while Project B has an IRR of 15 percent. The two projects have the same risk, and at a required return of 8.0 percent the projects have the same NPV (i.e., the cross-over rate = 8%). Assume each project has an initial cash outflow followed by a series of inflows. Given this information, which of the following statements is correct?
If the WACC is 14 percent, Project B’s NPV will be higher than Project A’s NPV.
If the WACC is 9 percent, Project B’s NPV will be lower than Project A’s NPV.
If the WACC is 6 percent, Project A’s NPV will be lower than Project B’s NPV
All of the statements above are correct.
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