The NPV and IRR methods, when used to evaluate two independent and equally risky projects, will lead to different accept/reject decisions and thus capital budgets if the projects' IRRs are greater than their cost of capital.

Question

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The NPV (Net Present Value) and IRR (Internal Rate of Return) methods generally lead to the same accept/reject decisions for independent projects when the projects' IRRs are greater than the cost of capital. This is because both methods will indicate that the projects are expected to generate returns above the required rate, making them financially viable. Differences in decisions typically arise in cases of mutually exclusive projects or when the projects have non-normal cash flows (e.g., differing scale, timing, or cash flow patterns).

The NPV and IRR Methods, When Used to Evaluate Two