Where two projects have the same investment outlays and project lives but different net cash inflows, the IRR and NPV may give different rankings.

Question

Quizplus · Accepted Answer

The IRR (internal rate of return) and NPV (net present value) methods may give different rankings in cases where two projects have the same investment outlays and project lives but different net cash inflows. This occurs because the IRR only looks at the percentage return on the initial investment, while the NPV takes into account the time value of money and provides a dollar value for the investment. Therefore, the NPV method may give the project with the higher cash inflows a higher ranking, while the IRR method may give the project with a higher percentage return a higher ranking.

Where Two Projects Have the Same Investment Outlays and Project