Project Alpha has an internal rate of return (IRR)of 15 percent.Project Beta has an IRR of 14 percent.Both projects have a required return of 12 percent.Which of the following statements is MOST correct?
A) Both projects have a positive net present value (NPV).
B) Project Alpha must have a higher NPV than Project Beta.
C) If the required return were less than 12 percent, Project Beta would have a higher IRR than Project Alpha.
D) Project Beta has a higher profitability index than Project Alpha.

Question

Quizplus · Accepted Answer

Since the internal rate of return for both projects exceeds the required rate of return, both projects are expected to generate positive net present value. However, we cannot determine which project has a higher NPV without additional information. Choice B is incorrect because the IRR does not necessarily indicate the relative magnitude of NPV. Choice C is also incorrect because the IRR does not depend on the required return. Finally, choice D is incorrect because we do not have enough information to calculate the profitability index for either project.

Project Alpha Has an Internal Rate of Return (IRR)of 15