 # Mathematical Finance Questions

## Question

(1) Project A and Project B are mutually exclusive. If Project A has a higher internal rate of return (IRR) than Project B, does that mean Project A must also have a higher net present value (NPV) than Project B? Explain.

(2) Given two mutually exclusive projects and a zero cost of capital, why do the payback method and NPV method may lead to the different decision on which project to undertake? Explain.

## Solution Preview

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(1) The IRR of a project is the interest rate that when future cashflows is discounted using this interest rate, the future cashflows....

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