Final answer:
The statement is true; a larger investment can have a higher NPV than a smaller investment with a higher rate of return due to larger cash flows and their timing.
Step-by-step explanation:
The statement that the net present value (NPV) of a large capital investment can be greater than the NPV of a smaller investment, even though the smaller investment earns a higher rate of return, is true. This can occur because NPV does not solely depend on the rate of return but also considers the absolute amount of cash flows, the timing of these cash flows, and the required rate of return or discount rate.
A larger investment may generate significantly higher cash flows, which, even if they are expected to grow at a lower rate, could result in a higher NPV when discounted back to present value. Therefore, it is possible for a high-risk investment to have both a high risk and a high potential return, as risk and return are inherently related in financial investments.