Normal Projects Q and R have the same NPV when the discount rate is zero.However,Project Q's cash flows come in faster than those of R.Therefore,we know that at any discount rate greater than zero,R will have a higher NPV than Q.

Question

Quizplus · Accepted Answer

The statement is incorrect. If Q's cash flows are coming in faster, it means that Q has a shorter payback period and a higher internal rate of return (IRR) than R. Therefore, at discount rates lower than IRR, Q will have a higher NPV than R. However, at discount rates higher than IRR, R will have a higher NPV than Q. It cannot be concluded that R will always have a higher NPV than Q at any discount rate greater than zero without additional information about their respective IRRs.

Normal Projects Q and R Have the Same NPV When