When NPV and IRR analysis provide inconsistent rankings of projects, the financial manager should generally select the project with the highest IRR.
In the event of such a conflict, all facts must be reconsidered, including the discount rate.

Question

Quizplus · Accepted Answer

The statement is false. Inconsistencies between NPV and IRR rankings may arise due to differences in project size, cash flow timing and discount rate used. In such cases, the financial manager should rely on NPV analysis, as it provides a more accurate measure of the net economic gain from the project.

When NPV and IRR Analysis Provide Inconsistent Rankings of Projects