1. Two mutually exclusive projects, Project S and Project L, each have a cost of $10,000. Their NPV profiles cross at a discount rate of 15 percent. Which of the following statements best describes this situation?
a. The NPV and IRR methods will not select the same project if the cost of capital is less than 15 percent; for example, 10 percent.
b. To determine if a ranking conflict will occur between the two projects the cost of capital is needed as well as an additional piece of information.
c. The NPV and IRR methods will always select the same project.
d. Project S should be selected at any cost of capital, because it has a higher IRR.
e. Project L should be selected at any cost of capital, because it has a higher IRR.
2. A bond has six years to maturity and has a coupon rate of 7.5 percent. Coupon payments are made annually and the bond has a face value of $1,000. The bond is currently selling in the market for $1,127. What is the yield-to-maturity on this bond?
A. 7.5 percent
B. 5 percent
C. 11.5 percent
D. 2.5 percent
E. None of the options is correct