In general,where there is a conflict between two mutually exclusive projects,the NPV of a project and its internal rate of return,in terms of making a go/no go decision,the conflict is resolved by which of the following rules?
A)Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the higher NPV.
B)Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the higher IRR.
C)Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the higher accounting net income.
D)Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the lower NPV.

Question

Quizplus · Accepted Answer

The goal of any investment decision is to maximize the shareholders' value, and the NPV of a project is a better measure of profitability than the IRR. The IRR method assumes that cash flows from a project can be reinvested at the same rate as the project's internal rate of return. However, in reality, cash flows generally cannot be reinvested at the same rate, so the NPV method is the more reliable measure of profitability. Therefore, the conflict should be resolved in favor of the project with the higher NPV.

In General,where There Is a Conflict Between Two Mutually Exclusive