Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method ranks the other one first.In theory, such conflicts should be resolved in favor of the project with the higher positive IRR.

Question

Quizplus · Accepted Answer

This statement is not entirely true. The conflict between NPV and IRR rankings primarily occurs due to differences in the timing and size of cash flows between the two projects. Therefore, the conflicts should be resolved by considering other factors such as project size, risk, and cash flow patterns. In some cases, it may be appropriate to prioritize the project with a higher NPV over that with a higher IRR.

Conflicts Between Two Mutually Exclusive Projects Occasionally Occur, Where the NPV