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Corporate Finance Q59

0. At which point the net present value profiles of two mutually exclusive projects with normal cash flows are most likely to intersect the horizontal axis?

  • Option : B
  • Explanation : For a project with normal cash flows, the NPV profile intersects the horizontal axis at the point where the discount rate is equal to the IRR. The crossover rate is the discount rate at which the NPVs of the projects are equal. While it is possible that the crossover rate is equal to each project’s IRR, it is not a likely event. The IRR for both projects being the firm’s WACC will only arise when both projects have a NPV = 0.
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