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Two mutually exclusive projects each have a cost of $10,000. The total undiscounted cash inflows from project L are $15,000, while the undiscounted cash inflows from project S total $13,000. Their NPV profiles cross at a discount rate of 10%. At the crossover point, both NPVs are positive.

i. If the required rate of return is less than 10%, which project should be chosen, according to the NPV decision rule?

a. Project L only b. Both L and S c. Either L or S d. Project S only e. Neither L nor S

ii. If the required rate of return is greater than the IRR of project S, which project should be chosen, according to the IRR decision rule?

a. Project L only b. Both L and S c. Either L or S d. Project S only e. Neither L nor S

iii. Which of the following statement best describes this situation?

a. Project L should be selected at any requires rate of return because it has a higher NPV. b. Project S should be selected at any requires rate of return because it has a higher IRR. c. Project L should be selected at any requires rate of return because it has a higher IRR. d. The NPV and IRR methods will select the same projects if the required rate of return is greater than 10%. e. The NPV and IRR methods will select the same projects if the required rate of return is less than 10%.

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