Explore BrainMass

Explore BrainMass

    Ranking conflicts between NPV and IRR,

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    What is the underlying cause of ranking conflicts between NPV and IRR?

    Why do you get a conflict in rankings with IRR and NPV?

    © BrainMass Inc. brainmass.com June 3, 2020, 9:21 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/ranking-conflicts-between-npv-irr-178254

    Solution Preview

    What is the underlying cause of ranking conflicts between NPV and IRR?

    Ranking conflicts arise when the NPV criterion chooses one project over the other whereas the IRR criterion recommends exactly the opposite.
    This problem arises when we have to select between two mutually exclusive projects

    There are two conditions under which conflicts arise between NPV and IRR:
    1) When project size (or scale) differences exist-investmement in one project is larger than in the second project
    2) When timing differences exist- timing of cash flows from two projects differ such that in one case the cash flows from one project come in the early years while most of the cash flows from the second ...

    Solution Summary

    The causes of ranking conflicts between NPV and IRR are discussed.

    $2.19

    ADVERTISEMENT