When mutually exclusive projects are considered, both NPV and IRR will always produce the same acceptance decision.

Question

Quizplus · Accepted Answer

While NPV (Net Present Value) and IRR (Internal Rate of Return) are both methods used to evaluate investments, they can sometimes lead to different acceptance decisions for mutually exclusive projects. This discrepancy arises because NPV directly measures the dollar value of an investment's contribution to wealth, while IRR identifies the rate of return. Differences in cash flow patterns, scale of investment, or required rates of return can lead to situations where one project is preferred by NPV criteria and another by IRR criteria.

When Mutually Exclusive Projects Are Considered, Both NPV and IRR