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Question:

Project X has an internal rate of return (IRR) of 14%. Project Y has an IRR of 17%. Both projects have conventional cash flow patterns (all inflows after the initial cash outflow). If the required rate of return is:

A
14%, the net present value (NPV) of Project Y will exceed the NPV of Project X.

Explaination

We know that at a 14% discount rate, the NPV of Project X is zero and the NPV of Project Y is greater than zero. There is no well-defined relationship between the required race of return and ordinary payback. If Project Y is smaller in size, its NPV may be smaller than that of Project X.

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