FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 139

Which of the following statements is CORRECT? Assume that
the project being considered has normal cash flows, with one outflow
followed by a series of inflows.
Question 13
Assume that the economy is enjoying a strong boom, and as a
result interest rates and money costs generally are relatively high. The
WACC for two mutually exclusive projects that are being considered is
12%. Project S has an IRR of 20% while Project L's IRR is 15%. The
projects have the same NPV at the 12% current WACC. However, you
believe that the economy will soon fall into a mild recession, and money
costs and thus your WACC will soon decline. You also think that the
projects will not be funded until the WACC has decreased, 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 14