When net present value and internal rate of return analysis provide inconsistent rankings of projects, the financial manager should generally move forward with the project that has the highest internal rate of return.
In the event of such a conflict, all facts must be reconsidered, including the discount rate.

Question

Quizplus · Accepted Answer

Inconsistent rankings between NPV and IRR indicate that the cash flows are not conventional, which means there may be multiple IRRs or no IRR at all. In such cases, the financial manager should rely on NPV to choose the best project. Additionally, a change in discount rate may not resolve the conflict, as it affects both NPV and IRR equally.

When Net Present Value and Internal Rate of Return Analysis