Question

Projects T and Q are mutually-exclusive investment alternatives, Each project requires a net investment of $20,000, followed by a series of positive net cash flows. Both projects have a useful life equal to 10 years. Project T has an NPV of $36,000 at a 0% discount rate, while project Q has an NPV of $30,000 at 0%. Furthermore, at a discount rate of 15 percent, the two projects have identical positive NPVs. Given this, which of the following statements is incorrect?

Group of answer choices

The slope of Project Q's NPV profile is steeper than the slope of Project T's NPV profile.

If the cost of capital is 10%, select Project Q.

There are three circumstances that can cause project evaluation technique conflict. Even though the net cash flow stream is not given, the project evaluation technique conflict in this problem must be caused by differences in the magnitude of the cash flows, or cash flow timing differences.

If the cost of capital is greater than the IRR of Project T, reject both projects.

Project Q has higher a IRR than Project T.

Answer 1

Project T has higher NPV at 0%

Cross over rate i.e. same NPV at 15%

Hence, project Q will have higher NPV beyond 15%

The incorrect statement is

If the cost of capital is 10%, select Project Q.

Project with higher NPV must be selected. Project T will have higher NPV below 15%

Rest all statements are correct. Q is steeper, has higher IRR

IRR must be higher than cost of capital for a project to be acceptable