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This question relates to the Quiz 6.3 diagram, which shows the NPV profile for Projects X and Y.

For what range of costs of capital is the NPV of both projects negative?

Question 3Select one:

a.
Between 9% and 13%

b.
Greater than 9%

c.
Less than 4%

d.
Greater than 13%

To answer the question regarding the range of costs of capital where the NPV of both projects is negative, let's analyze the graph:

1. The green curve represents Project Y, and the red curve represents Project X.
2. The horizontal axis represents the "Cost of Capital (%)", while the vertical axis represents "NPV".
3. Where the curves cross the horizontal axis, the NPV is zero. At points beyond where these curves cross the horizontal axis, the NPV becomes negative.

### Observations:
- Project X (red curve) has an NPV of zero at around 9%.
- Project Y (green curve) has an NPV of zero at around 13%.
- Beyond these points (to the right), the NPV of both projects becomes negative.

### Conclusion:
For **both projects** to have a negative NPV, the cost of capital must be **greater than 13%**, because after this point, both curves fall below the horizontal axis.

The correct answer is:
- **d. Greater than 13%**

Would you like more details or further explanations on the reasoning? 

Here are five related questions to consider:
1. How do you calculate NPV for a project given a cost of capital?
2. What factors cause NPV to decline as the cost of capital increases?
3. Why is NPV used as a decision-making tool in capital budgeting?
4. How does the shape of an NPV profile reflect a project’s risk and return?
5. What are some alternatives to NPV for project evaluation?

**Tip**: When interpreting NPV profiles, remember that the points where the curves cross the horizontal axis (zero NPV) represent the internal rate of return (IRR) of the project.

For what range of costs of capital is the NPV of both projects negative?

This page explores the NPV profiles of two projects (X and Y) and answers the question of at what range of cost of capital the NPVs for both projects turn negative. Using concepts like NPV profiles and internal rate of return (IRR), this guide helps analyze the key points where projects shift from positive to negative returns. Suitable for finance students.

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