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NPV and IRR can lead to different decisions in situations investment decision involves mutually exclusive choices.
NPV
Net Present Value (NPV) is the calculation used to determine the present value of a series of future cash flows minus the initial investment, used in capital budgeting to assess the profitability of an investment.
IRR
The Internal Rate of Return is the discount rate that makes the net present value of all cash flows from a particular project equal to zero.
Mutually Exclusive
situations or events that cannot occur at the same time.
- Identify situations where NPV and IRR methods can lead to different investment decisions and understand the reasons behind these differences.
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Learning Objectives
- Identify situations where NPV and IRR methods can lead to different investment decisions and understand the reasons behind these differences.
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