Conflicting rankings using NPV and IRR result from differences in the magnitude and timing of cash flows.

Question

Quizplus · Accepted Answer

Conflicting rankings using NPV and IRR can occur when there are differences in the timing and magnitude of cash flows, leading to different results. NPV discounts cash flows back to the present using a predetermined interest rate, while IRR determines the interest rate at which the NPV equals zero. Therefore, different cash flow patterns can lead to different rankings in terms of project profitability.

Conflicting Rankings Using NPV and IRR Result from Differences in the Magnitude