Answer:
Explanation:
IRR is the discount rate point where NPV equal to 0. Given, both projects have same NPV at 8%, when discount rate is higher than 8%, NPV of project A will decrease faster than that of project B because project A's IRR is lower than project B's IRR. When discount rate is lower than 8%, NPV of project A will increase faster than project B's.
We will go through each of the answer options:
A. If the cost of capital is 9%, Project A's NPV will be higher than Project B's. False
<em>Explaination: Cost of capital here is higher than 8%, NPV of project A will be lower than that of project B.</em>
B. If the cost of capital is 6%, Project B's NPV will be higher than Project A's. False
<em>Explaination: </em>
C. If the cost of capital is greater than 14%, Project A's IRR will exceed Project B's. False
<em>Explaination: IRR is dependent on pattern of cashflows rather than cost of capital.</em><em> </em>
D. If the cost of capital is 9%, Project B's NPV will be higher than Project A's. True
<em>Explaination: This is an opposite answer to option A.</em>
E. If the cost of capital is 13%, Project A's NPV will be higher than Project B's. False
<em>Explaination: When the cost of capital is 13%, NPV of project A is negative and NPV of project B is positive.</em>
