Which of the following options describes IRR and NPV ranking in situations of mutual exclusivity?
A) They are always the same.
B) They are always in the opposite order.
C) They may be in the opposite order.
D) They are never the same.

Question

Quizplus · Accepted Answer

IRR and NPV ranking may be in the opposite order in situations of mutual exclusivity. When selecting between mutually exclusive projects, it is important to consider both IRR and NPV, as they may provide conflicting rankings. While IRR focuses on the percentage return, NPV measures the absolute dollar value added. Therefore, if two projects have different sizes, NPV may be a better measure of profitability. It is possible for IRR to rank one project higher, while NPV ranks the other project higher. In such cases, it is important to consider other factors such as risk, capital constraints, and strategic fit when making a decision.

Which of the Following Options Describes IRR and NPV Ranking