Question

If two projects have the same PVB but Project A has a higher IRR than Project B, what is the usual recommendation when capital is limited?

• A. Choose the project with the higher NPV regardless of IRR
• B. Choose the project with the higher IRR
• C. Always choose the project with a longer life
• D. Reject both projects

Hint:

For capital-constrained projects, \[ \boxed{ \text{Higher IRR} \Rightarrow \text{Higher return per unit investment}. } \]

Answer 1

The Correct Option is B

Step 1: Recall the significance of IRR. The Internal Rate of Return (IRR) represents the discount rate at which the Net Present Value (NPV) of a project becomes zero.

Step 2: Select the preferred project. When competing projects have the same present value of benefits (PVB) and capital is limited, the project with the higher IRR generally provides a better return on investment. Hence, \[ \boxed{\text{Choose the project with the higher IRR}.} \] Therefore, \[ \boxed{(B)} \] is the correct answer.