Ranking conflicts can arise if one relies on IRR instead of NPV when:
A) The first cash flow is negative and the remaining cash flows are positive.
B) Projects are independent of one another.
C) A project has more than one NPV.
D) Projects are mutually exclusive.
E) The profitability index is greater than one.

Question

Quizplus · Accepted Answer

Ranking conflicts between IRR and NPV often occur in the case of mutually exclusive projects. This is because the IRR method does not account for the scale of investment or the reinvestment of cash flows, whereas NPV provides a dollar value that reflects the net value added by undertaking the project, making it more reliable for comparing projects of different sizes or with different cash flow patterns.

Ranking Conflicts Can Arise If One Relies on IRR Instead