When choosing between two mutually exclusive projects for which NPV and IRR give different results , the final decision should be based on NPV and not IRR.

Question

​When choosing between two mutually exclusive projects for which NPV and IRR give different results , the final decision should be based on NPV and not IRR.

Quizplus · Accepted Answer

NPV is a better measure of profitability and provides a clear indication of the absolute value of the project's profitability. IRR, on the other hand, is a relative measure of profitability and assumes that cash flows can be reinvested at the same rate of return. In some cases, IRR can lead to incorrect decisions when choosing between projects with different cash flow patterns or when cash flows cannot be reinvested at the IRR rate. Therefore, NPV should be the primary decision criterion when choosing between mutually exclusive projects.

​When Choosing Between Two Mutually Exclusive Projects for Which NPV

When Choosing Between Two Mutually Exclusive Projects for Which NPV