Determine the changes in cost of capital


Response to the following problem:

Explain why, if two mutually exclusive projects are being compared, the shortterm project might have the higher ranking under the NPV criterion if the cost of capital is high, but the long-term project might be deemed better if the cost of capital is low.

Would changes in the cost of capital ever cause a change in the IRR ranking of two such projects?

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Financial Accounting: Determine the changes in cost of capital
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