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Problem 1: Projects A and B both have an initial cost of $10,000, followed by a series of positive cash inflows. Project A's undiscounted net cash flows total $30,000, while B's total undiscounted flows are $20,000. At a cost of capital (WACC) of 10%, the two projects have identical net present values (NPV). Which project's NPV is less sensitive to changes in the WACC?
Group of answer choices:
Option 1: Project B.
Option 2: The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative internal rates of return (IRR).
Option 3: Neither project is sensitive to changes in the discount rate, since both have NPV profiles that are horizontal.
Option 4: Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital.
Option 5: Project A.
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