The net present value, internal rate of return and payback period methods always agree on which project would enhance shareholder wealth and which would diminish it.

Question

Quizplus · Accepted Answer

The three methods may not always agree on the ranking of projects, especially when there are mutually exclusive projects with different sizes and timings of cash flows. Additionally, the payback period method only considers cash flows up to the point when initial investment is recouped, while ignoring cash flows beyond that point. This could result in projects being accepted that do not enhance long-term shareholder wealth.

The Net Present Value, Internal Rate of Return and Payback