General Knowledge · Economics & Corporate Finance
Project Alpha and Project Beta are mutually exclusive. Project Alpha has an IRR of 18% and an NPV of $150,000 at the company's weighted average cost of capital (WACC) of 10%. Project Beta has an IRR of 22% and an NPV of $120,000 at the same WACC. Both projects have conventional cash flow patterns. Which of the following represents the BEST advice for the company and the technical reason for it?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Accept neither project until the Modified Internal Rate of Return (MIRR) is calculated, as the IRR method assumes reinvestment at the cost of capital.
- 2Accept Project Beta because the IRR method is more reliable as it does not require a pre-determined cost of capital.
- 3Accept Project Alpha because it results in a higher absolute increase in shareholder wealth.✓
- 4Accept Project Beta because it has the higher IRR, indicating a more efficient use of capital.
Correct answer
Accept Project Alpha because it results in a higher absolute increase in shareholder wealth.
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