NPV and IRR can lead to different decisions in situations investment decision involves mutually exclusive choices.

Question

Quizplus · Accepted Answer

NPV (Net Present Value) and IRR (Internal Rate of Return) can indeed lead to different decisions when evaluating mutually exclusive projects because they measure profitability in different ways. NPV calculates the dollar value of the project's contribution to wealth, while IRR finds the rate of return at which the project's net present value equals zero. Differences in project scale, timing of cash flows, and required rates of return can cause NPV and IRR to recommend different projects.

NPV and IRR Can Lead to Different Decisions in Situations