NPV V/S IRR
The following are the various dissimilarities between NPV and IRR –
- Size disparity problem
NPV and IRR method give different ranking to projects when the initial investment in projects under consideration i.e., mutually exclusive projects is different .The cash outlay of some projects is larger than that of others.
- Timing of cash flows
The most commonly found condition for the conflict between the NPV and IRR methods is the difference in the timing of cash flow
- Projects with unequal lives
Another situation in which the IRR and NPV methods would give a conflict ranking to mutually exclusive projects is when the projects have different expected lives.
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