Question:
An organization is using capital budgeting techniques to compare two independent projects. It could accept one, both, or neither of the projects. Which of the following statements is true about the use of net present value (NPV) and internal rate of return (IRR) methods for evaluating these two projects?
1. NPV and IRR criteria will always lead to the same accept or reject decision for two independent projects.
2. If the first project's IRR is higher than the organization's cost or capital, the first project will be accepted but the second project will not.
3. If the NPV criterion leads to accepting or rejecting the first project, one cannot predict whether the IRR criterion will lead to accepting or rejecting the first project.
4. If the NPV criterion leads to accepting the first project, the IRR criterion will never lead to accepting the first project.