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      Question

      A company evaluates two mutually exclusive projects, A

      and B. Project A has an NPV of ₹3.5 crore and an IRR of 13%. Project B has an NPV of ₹3.2 crore and an IRR of 16%. The company’s cost of capital is 10%. Which of the following statements is most appropriate?
      A Project B should be selected based on IRR superiority Correct Answer Incorrect Answer
      B Project A should be selected as it adds more value Correct Answer Incorrect Answer
      C Both projects can be selected Correct Answer Incorrect Answer
      D IRR is a better decision rule; hence Project B Correct Answer Incorrect Answer
      E NPV and IRR are always consistent in ranking Correct Answer Incorrect Answer

      Solution

      In mutually exclusive projects, NPV is the better criterion as it shows the absolute value addition. Despite Project B’s higher IRR, Project A adds more monetary value. Hence, Project A should be selected.

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