Discuss the various circumstance under which the IIR and NPV criteria will lead to the same acceptance/rejection as well as when they might lead to conflict. Also use examples to explain your answer

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Discuss the various circumstance under which the IIR and NPV criteria will lead to the same acceptance/rejection as well as when they might lead to

conflict. Also use examples to explain your answer


Answered Same DaySep 14, 2022

Answer To: Discuss the various circumstance under which the IIR and NPV criteria will lead to the same...

Sandeep answered on Sep 14 2022
30 Votes
IRR AND NPV CRITERIA
When analysing a single conventional Independent proposal, both NPV and IIR wi
ll deliver the same indicator /signals regarding whether to “Accept or Reject” proposals. Quite possible that some projects may be ranked higher due to higher NPV whereas some rank higher due to higher IIR. These variations occur due to different cash flows streams in both projects.
    Period
    Project X
    Project Y
    Year 0
    -5000
    -5000
    Year 1
    2000
    00
    Year 2
    2000
    0
    Year 3
    2000
    0
    Year 4
    2000
    0
    Year 5
    2000
    15000
    NPV
    $ 2581.57
    $4313.82
    IIR
    29%
    25%
Thus, it is evident that Project X has higher IIR whereas Project Y has higher NPV. Therefore, if these proposals are independent, it will not matter since the company can...
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