Question: A firm is choosing between two mutually exclusive projects A and B based on their NPV. The projects cash flows are shown in Table The

A firm is choosing between two mutually exclusive projects A and B based on their NPV. The projects cash flows are shown in Table The riskiness of the projects is the same, so the cash flows at time 1 are discounted by the same discount rate.

a. For what values of the discount rate would the firm select Project A? For what values would it select Project B?

b. To what extent do you agree with the following statement? When choosing between two projects, it doesnt matter if you make a mistake in computing the discount rate, as long as you use the same discount rate for each project.

Table: Project A Project B

Time 0 -10 -20

Time 1 15 26

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