When graphing NPV at different discount rates for mutually exclusive projects, the project with the lower IRR should be selected whenever:
A)The rate corresponding to the crossover NPV exceeds the opportunity cost of capital
B)The rate corresponding to the crossover NPV is less than the opportunity cost of capital
C)That IRR exceeds the opportunity cost of capital
D)The NPV is negative when discounted at the IRR

Question

Quizplus · Accepted Answer

The project with the lower IRR should be selected whenever the rate corresponding to the crossover NPV exceeds the opportunity cost of capital. This is because the crossover NPV is the point at which the NPVs of the two projects are equal, and if the rate corresponding to the crossover NPV exceeds the opportunity cost of capital, then the project with the lower IRR will have a higher NPV at the opportunity cost of capital.

When Graphing NPV at Different Discount Rates for Mutually Exclusive