For mutually exclusive projects, the IRR and NPV can give different rankings, but for independent conventional cash flow projects the rankings will be the same.

Question

Quizplus · Accepted Answer

This is because with independent conventional cash flow projects, the ranking of projects is based on the size of the NPV, which takes into account the discounted value of all cash flows. The IRR only considers the rate at which the cash flows are generated and does not take into account the scale or magnitude of the cash flows. However, for mutually exclusive projects, the IRR may overestimate the desirability of a project, leading to a different ranking than NPV, which considers the total project cash flows.

For Mutually Exclusive Projects, the IRR and NPV Can Give