the IRR of normal Project X is greater than the IRR of mutually exclusive (and also normal) Project Y, we can conclude that the firm should always select X rather than Y if X has NPV 0.

Question

the IRR of normal Project X is greater than the IRR of mutually exclusive (and also normal) Project Y, we can conclude that the firm should always select X rather than Y if X has NPV > 0.

Quizplus · Accepted Answer

The IRR rule can be misleading for mutually exclusive projects; the project with the higher IRR is not always the better choice if it doesn't maximize the NPV. The firm should select the project with the higher NPV, not necessarily the higher IRR.

The IRR of Normal Project X Is Greater Than the IRR