Why is it possible for investments to have a higher net present value than a competing investment...

Question

Why is it possible for investments to have a higher net present value than a competing investment but still have a lower internal rate of return and profitability index than that competitor?

Robert · Accepted Answer

Running Head: Analysis of NPV and IRR
College Name-
Student Name-
Professor Name-
Solution-
Net present value (NPV), internal rate of return (IRR) and Profitability Index (PI) are different capital budgeting techniques used before selecting a project. Every technique is measured using different formulas and has different implications. 
If in case there are two mutually exclusive projects available one with higher amount of initial investment and other with a lower amount of initial investment, then IRR of the project with lower initial investment will be higher irrespective of higher of lower NPV.

Why is it possible for investments to have a higher net present value than a competing investment but still have a lower internal rate of return and profitability index than that competitor?

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment