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

While Project X has a higher IRR and NPV at a specific cost of capital, NPV profiles could intersect, meaning that the relative attractiveness of the projects could change at different discount rates. If the cost of capital changes, it might make Project Y more attractive under certain conditions.

The IRR of Normal Project X Is Greater Than the IRR