Two Projects NPV IRR Project A 14.12 16.37 Project B 19.53 15.02 r = 10% Question: What discount rate would result in the same NPV for both projects? Answer: B. A rate between 10% and 15.02%. My Question: I know how to do this with the math. My question is can it always be said that this type of question, all else equal to this example, will ALWAYS be satisfied by a discount rate HIGHER than r given in the problem and LOWER than the constraining IRR (15.02)? My initial logic is that it has to be LOWER than the constraining IRR because if it were higher, it would result in a negative NPV for Project B I remember reading this example in schwesser with their no math explanation, but I cant find it. Thanks forum
the short answer is if both NPVs are positive - yes. If one of the NPVs was negative (by default the corresponding IRR has to be below r) the discount rate that would have them matching would be between r and the higher IRR. Hope it helps
thanks! where is this in schwesser? Thanks!
Draw the NPV/rate return graphs for both projects and the answer is obvious