When evaluating capital projects, the decisions using the NPV method and the IRR method will agree if
A) the projects are independent.
B) the cash flow pattern is conventional.
C) the projects are mutually exclusive.
D) Both a and b are correct.

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) and IRR (Internal Rate of Return) methods will agree on the evaluation of capital projects when the projects are independent (meaning the acceptance of one project does not affect the decision of accepting another) and when the cash flow pattern is conventional (meaning the initial investment is followed by a series of positive cash flows). Both conditions ensure that the decision-making process is straightforward and that the rankings provided by NPV and IRR methods will be consistent.

When Evaluating Capital Projects, the Decisions Using the NPV Method