Which of the following situations can lead to IRR giving a different decision than NPV?
A)Differences in project scale
B)Multiple IRRs
C)Delayed investment
D)All of the above can lead to IRR giving a different decision than NPV.

Question

Quizplus · Accepted Answer

A) Differences in project scale can lead to IRR giving a different decision than NPV because IRR assumes that cash flows are reinvested at the IRR rate, which might not be feasible for larger projects. NPV, on the other hand, discounts cash flows at the appropriate cost of capital, which takes into consideration the project scale.

B) Multiple IRRs can lead to IRR giving a different decision than NPV because they present a dilemma in terms of selecting the correct rate of return. NPV is not affected by multiple IRRs and always represents a single value.

C) Delayed investment can lead to IRR giving a different decision than NPV because IRR does not account for the time value of money. Delayed investment could lead to underestimation of the actual project return. NPV takes into account the time value of money, thus not affected by delayed investment.

Which of the Following Situations Can Lead to IRR Giving