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I know that the lower the discount rate the higher the NPV.So I am trying to reconcile it with-If IRR > Cost of Capital then NPV must be positive and the project must be accepted.
This is my confusion if IRR > cost of capital- then the NPV associated with this IRR must be lower than the NPV associated with the cost of capital as the higher the discount rate the lower the NPV
The IRR has nothing to do with the cost of capital: it is purely a function of the project cash flows.
So, if a project had an IRR of 12%, think of this as its earning rate. If the cost of capital is 10%, the project earns at a greater rate than capital costs, so the project is worthwhile. The lower the cost of capital the more ahead of the IRR the project is and the greater its NPV.
If the cost of capital rose to 15%, the IRR would still be 12%, but now the project does not earn enough to ‘keep up with’ the cost of capital and the payment of dividends and interest to the suppliers of capital.
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