Author Question: Projects S and L both have an initial cost of $20,000, followed by a series of positive cash ... (Read 45 times)

warrenjean01 · **on:** Aug 7, 2023

Projects S and L both have an initial cost of $20,000, followed by a series of positive cash inflows. Project S’s undiscounted net cash flows total $30,000, while L’s total undiscounted flows are $40,000. At a WACC of 11%, the two projects have identical NPVs. Which project’s NPV is less sensitive to changes in the WACC?

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Project S

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Project L

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Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital.

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Neither project is sensitive to changes in the discount rate, since both have NPV profiles that are horizontal.

butterfly17 · **Reply #1 on:** Aug 7, 2023

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