The IRR of normal Project X is greater than the IRR of normal Project Y, and both IRRs are greater than zero. Also, the NPV of X is greater than the NPV of Y at the cost of capital. If the two projects
are mutually exclusive, Project X should definitely be selected, and the investment made, provided we have confidence in the data. Put another way, it is impossible to draw NPV profiles that would suggest NOT ACCEPTING Project X.

Question

Quizplus · Accepted Answer

The statement is false because it is possible for the NPV profiles of mutually exclusive projects to cross, meaning that at different costs of capital, the project with the higher IRR might not have the higher NPV. Therefore, it is not impossible to draw NPV profiles that suggest not accepting Project X.

The IRR of Normal Project X Is Greater Than the IRR