A project with a lower IRR or PI may add more to shareholder value than another mutually exclusive project if the projects have different cash flow patterns, time horizons, or sizes.

Question

Quizplus · Accepted Answer

The IRR and PI measures only take into account the timing and magnitude of cash flows, and do not consider factors such as risk, time horizon, or scale of the projects. Therefore, a project with a lower IRR or PI may still create more shareholder value if it has a more favorable cash flow profile or meets other strategic objectives.

A Project with a Lower IRR or PI May Add