Answered: Explain why the IRR may contradict the…

Explain why the IRR may contradict the ranking of NPV and therfore not recmmeneded to use when choosing among mutually exclusive projects.\ (5 lines)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 4Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

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a. Explain why the IRR may contradict the ranking of NPV and therfore not recmmeneded to use when choosing among mutually exclusive projects.\ (5 lines) b. Give two possible examples of such projects. (choose realistic projects, or actual projects you know of) Exaplain your choice?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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