The NPV, IRR, and PI always agree on which projects would enhance shareholder wealth and which would diminish it.

Question

Quizplus · Accepted Answer

The NPV, IRR, and PI are all methods for evaluating the profitability of a project, and they are all based on the concept of time value of money. Therefore, they should all lead to the same conclusion regarding whether a project would increase or decrease shareholder wealth. If a project has a positive NPV, IRR greater than the required rate of return, and PI greater than 1, then it is expected to enhance shareholder wealth. Conversely, if a project has a negative NPV, IRR less than the required rate of return, and PI less than 1, then it is expected to diminish shareholder wealth.

The NPV, IRR, and PI Always Agree on Which Projects