Conflicts between two mutually exclusive projects occasionally occur,where the NPV method ranks one project higher but the IRR method puts the other one first.In theory,such conflicts should be resolved in favor of the project with the higher IRR.

Question

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Such conflicts should be resolved in favor of the project with the higher NPV, as it reflects the actual increase in wealth generated by the project. The IRR method can sometimes lead to incorrect decisions, especially when comparing projects with different scales or timing of cash flows.

Conflicts Between Two Mutually Exclusive Projects Occasionally Occur,where the NPV