The decision to accept or reject an investment proposal can be made using either the internal rate of return method or the net present value method under most circumstances.The following is/are circumstance(s)that may arise where the two methods need not give the same answer and the net present value method's answer is always the correct one.

Question

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All of the circumstances listed (mutually exclusive projects, projects with different lifetimes, and projects with intermixing of inflows and outflows) can lead to situations where the internal rate of return method may not give a clear answer or may even lead to incorrect decision making. In these cases, the net present value method is recommended as it is a more reliable and accurate approach to assessing the potential profitability of an investment proposal.

The Decision to Accept or Reject an Investment Proposal Can