Question

NVP versus IRR. Romboski, LLC, has identified the following two mutually exclusive projects:

Year	Cash Flow (A)	Cash Flow (B)
0	($65,000)	($65,000)
1	$34,000	$19,000
2	$27,000	$25,000
3	$21,000	$29,000
4	$17,000	$34,000
	22.23%	21.01%

If you apply the IRR decision rule, project A should be selected

Is that decision necessarily correct?

Answer 1

NPV = PV of Cash Inflows - PV of Cash Outflows

Incase of Mutually exclusive Projects select the Project with higher NPV.

There may be cases where One Project is suggestable Based on IRR and the same is not suggestable as per NPV.

Hence The decision of selcting Project A is not necessarily correct. It may change also.