Question

Problem 2 Two projects A and B have internal rates of return of ???஺ = 8% and ???஻ = 12%. Mark the only correct statement. A) Investing in A is always preferable B) Investing in B is always preferable C) If the common cost of capital is 10%, then investing in B is preferable D) If the common cost of capital is 10%, then investing in A is preferable E) There is no cost of capital under which A and B are equally attractive

Answer 1

	IRR
Project A	8%
Project B	12%

Option C is correct

If the common cost of capital is 10%, then investing in B is preferable because the IRR of project B (12%) is greater than the cost of capital (10%)

Option A is incorrect because investing in A is not preferred when the cost of capital is greater than 8%

Option B is incorrect because investing in B is not preferred when the cost of capital is greater than 12%

Option D is incorrect because investing in A is not preferred because the cost of capital of 10% is greater than the IRR

Option E is incorrect because there will some cost of capital under which A and B are equally attractive

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