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Which of the following statements is CORRECT?
Question 3
Assume that the economy is in a mild recession, and as a result
interest rates and money costs generally are relatively low. The WACC
for two mutually exclusive projects that are being considered is 8%.
Project S has an IRR of 20% while Project L's IRR is 15%. The projects
have the same NPV at the 8% current WACC. However, you believe
that the economy is about to recover, and money costs and thus your
WACC will also increase. You also think that the projects will not be
funded until the WACC has increased, and their cash flows will not be
affected by the change in economic conditions. Under these conditions,
which of the following statements is CORRECT?
Question 4
Four of the following statements are truly disadvantages of the
regular payback method, but one is not a disadvantage of this method.
Which one is NOT
a disadvantage of the payback method?