General Studies · Financial Management
When appraising two mutually exclusive projects using both NPV and IRR, a conflict in ranking may arise. Which method should be used to make the final decision to align with the goal of shareholder wealth maximization?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The project with the higher IRR, as it represents a higher percentage rate of return
- 2The project with the higher NPV, as it measures the absolute increase in shareholder wealth✓
- 3The project with the shorter payback period, as it represents a less risky measure
- 4Neither method, as an equivalent annual cost calculation is mandatory
Correct answer
The project with the higher NPV, as it measures the absolute increase in shareholder wealth
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